Nevada |
7370 |
13-3750988 |
||||||||
Nevada |
7370 |
42-1745941 |
||||||||
(State or
other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
Marc H.
Bell Chief Executive Officer and President FriendFinder Networks Inc. 6800 Broken Sound Parkway, Suite 200 Boca Raton, Florida 33487 Telephone: (561) 912-7000 (Name, address, including zip code, and telephone number, including area code, of agent for service) |
Please send a copy of all communications to: Bradley D. Houser Esq. Akerman Senterfitt One Southeast Third Ave., 25th Floor Miami, Florida 33131-1714 Telephone: (305) 374-5600 Fax: (305) 374-5095 |
Large accelerated
filer |
[ ] |
Accelerated filer |
[ ] |
||||||||||||
Non-accelerated
filer |
[X] |
Smaller reporting company |
[ ] |
||||||||||||
(Do
not check if a smaller reporting company) |
Title of each class of securities to be registered |
Amount to be registered |
Proposed maximum offering price per unit |
Proposed maximum aggregate offering price |
Amount of registration fee |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
14% Senior
Secured Notes due 2013 |
$ | 235,331,887 | (1) | 100 | %(5) | $ | 235,331,887 | (5) | $ | 26,969.03 | ||||||||
Guarantees of
the 14% Senior Secured Notes due 2013 |
| | | | (11) | |||||||||||||
14% Cash Pay
Secured Notes due 2013 |
$ | 10,630,667 | (2) | 100 | %(6) | $ | 10,630,667 | (6) | $ | 1,218.27 | ||||||||
Guarantees of
the 14% Cash Pay Secured Notes due 2013 |
| | | | (11) | |||||||||||||
11.5%
Convertible Non-Cash Pay Secured Notes due 2014 |
$ | 250,849,125 | (3) | 100 | %(7) | $ | 250,849,125 | (7) | $ | 28,747.31 | ||||||||
Guarantees of
the 11.5% Convertible Non-Cash Pay Secured Notes due 2014 |
| | | | (11) | |||||||||||||
11.5%
Convertible Non-Cash Pay Secured Notes due 2014 Paid-in-Kind |
$ | 93,620,766 | (4) | 100 | % | $ | 93,620,766 | (4) | $ | 10,728.94 | ||||||||
Common Stock,
par value $0.001 per share, underlying the 11.5% Convertible Non-Cash Pay Notes |
8,310,763 | (8) | | | | (8) | ||||||||||||
Common Stock,
par value $0.001 per share |
22,696,703 | (9) | $ | 0.61 | (10) | $ | 13,844,989 | (10) | $ | 1,586.64 | ||||||||
Aggregate number
of shares being registered in this offering |
31,007,466 | | | | ||||||||||||||
Total amount of
registration fee |
| | | $ | 69,250.19 | (12) |
(1) |
Represents the aggregate principal amount of the 14% Senior Secured Notes due 2013 oustanding being registered. |
(2) |
Represents the aggregate principal amount of the 14% Cash Pay Secured Notes due 2013 outstanding being registered. |
(3) |
Represents the aggregate principal amount of the 11.5% Convertible Non-Cash Pay Secured Notes due 2014 outstanding, or $250,849,125, being registered. |
(4) |
Represents the aggregate principal amount of the 11.5% Convertible Non-Cash Pay Secured Notes due 2014 (the Non-Cash Pay Notes) that may be paid-in-kind in respect of future interest payments. |
(5) |
Estimated solely for the purpose of calculating the registration fee which was computed in accordance with Rule 457(o) under the Securities Act of 1933, as amended (the Securities Act). |
(6) |
Estimated solely for the purpose of calculating the registration fee which was computed in accordance with Rule 457(o) under the Securities Act. |
(7) |
Estimated solely for the purpose of calculating the registration fee which was computed in accordance with Rule 457(o) under the Securities Act. |
(8) |
Based on the number of shares of common stock of FriendFinder Networks Inc. as may be issued upon conversion of all of the 11.5% Convertible Non-Cash Pay Secured Notes due 2014 registered hereby at a conversion price equal to the price per share of common stock offered upon the consummation of FriendFinder Networks Inc.s initial public offering on May 16, 2011, or $10.00 per share; the shares are not subject to an additional fee pursuant to Rule 457(i) of the Securities Act. |
(9) |
Consists of shares held outright. |
(10) |
Estimated solely for the purpose of calculating the registration fee which was computed in accordance with Rule 457(c) under the Securities Act of 1933, as amended. The calculations of the proposed maximum offering price per share and the proposed maximum aggregate offering price are based on the average of the high and low sale prices of FriendFinder Networks Inc.s common stock on December 15 , 2011, as quoted on the NASDAQ Global Market. |
(11) |
Pursuant to Rule 457(n) of the Securities Act, no registration fee is required for the Guarantees. |
(12) |
Pursuant to Rule 457(p) of the Securities Act, we offset $58,705.58 which was previously paid in connection with a Registration Statement on Form S-4 filed on August 1, 2011, as amended, and withdrawn on October 17, 2011. We paid a total registration fee of $72,923.63 with the Registration Statement on Form S-1 filed on October 18, 2011. |
Exact Name of Subsidiary Guarantor |
State or Other Jurisdiction of Incorporation or Formation |
I.R.S. Employer Identification Number |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Argus
Payments Inc. |
Delaware |
45-2494661 |
||||||||
Big Island
Technology Group, Inc. |
California |
20-8009795 |
||||||||
Blue Hen
Group Inc. |
Delaware |
45-2539667 |
||||||||
Confirm ID,
Inc. |
California |
74-3037020 |
||||||||
Danni Ashe,
Inc. |
California |
95-4665271 |
||||||||
Fastcupid,
Inc. |
California |
20-2997869 |
||||||||
Fierce Wombat
Games Inc. (f/k/a Big Ego Games Inc.) |
California |
27-3532019 |
||||||||
Flash Jigo
Corp. |
Delaware |
27-4660821 |
||||||||
FriendFinder
California Inc. |
California |
77-0522750 |
||||||||
FriendFinder
Ventures Inc. |
Nevada |
27-4663125 |
||||||||
FRNK
Technology Group |
California |
94-3277102 |
||||||||
General Media
Art Holding, Inc. |
Delaware |
13-4042637 |
||||||||
General Media
Communications, Inc. |
New
York |
13-3502237 |
||||||||
General Media
Entertainment, Inc. |
New
York |
13-3592960 |
||||||||
Global
Alphabet, Inc. |
California |
77-0527649 |
||||||||
GMCI Internet
Operations, Inc. |
New
York |
13-4097655 |
||||||||
GMI On-Line
Ventures, Ltd. |
Delaware |
13-4097656 |
||||||||
Magnolia
Blossom Inc. |
Delaware |
45-2538925 |
||||||||
Medley.com
Incorporated |
California |
03-0543594 |
||||||||
NAFT News
Corporation |
California |
27-3634385 |
||||||||
Penthouse
Digital Media Productions Inc. |
New
York |
65-1251056 |
||||||||
Penthouse
Images Acquisitions, Ltd. |
New
York |
13-3599228 |
||||||||
Playtime
Gaming Inc. |
California |
27-3634371 |
||||||||
PerfectMatch
Inc. (f/k/a Goldenrod Spear Inc.) |
Delaware |
45-2539020 |
||||||||
PMGI Holdings
Inc. |
Delaware |
20-1942663 |
||||||||
PPM
Technology Group, Inc. |
California |
20-8009876 |
||||||||
Pure
Entertainment Telecommunications, Inc. |
New
York |
90-0209626 |
||||||||
Sharkfish,
Inc. |
California |
56-2471221 |
||||||||
Snapshot
Productions, LLC |
Texas |
46-0477091 |
||||||||
Streamray
Inc. |
Nevada |
88-0422716 |
||||||||
Streamray
Studios Inc. |
California |
26-4311009 |
||||||||
Tan Door
Media Inc. |
California |
26-4311100 |
||||||||
Traffic Cat,
Inc. |
California |
56-2471223 |
||||||||
Transbloom,
Inc. |
California |
74-3021168 |
||||||||
Various, Inc.
|
California |
77-0477762 |
||||||||
Video Bliss,
Inc. |
California |
95-4566760 |
||||||||
West Coast
Facilities Inc. |
California |
59-3814751 |
||||||||
XVHUB
Group Inc. (f/k/a Giant Swallowtail Inc.) |
Delaware |
45-2539401 |
Page |
||||||
---|---|---|---|---|---|---|
SUMMARY
|
1 | |||||
THE OFFERING
|
6 | |||||
RATIO OF
EARNINGS TO FIXED CHARGES |
11 | |||||
RISK FACTORS
|
12 | |||||
USE OF
PROCEEDS |
37 | |||||
DILUTION
|
37 | |||||
SELLING
SECURITYHOLDERS |
38 | |||||
BUSINESS
|
4 8 | |||||
MARKET PRICE
OF AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS |
68 | |||||
SELECTED
CONSOLIDATED FINANCIAL DATA |
69 | |||||
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
72 | |||||
FORWARD-LOOKING STATEMENTS |
11 1 | |||||
DIRECTORS AND
EXECUTIVE OFFICERS |
114 | |||||
EXECUTIVE
COMPENSATION |
121 | |||||
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS |
138 | |||||
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
148 | |||||
PLAN OF
DISTRIBUTION |
150 | |||||
DESCRIPTION
OF NOTES |
152 | |||||
DESCRIPTION
OF CAPITAL STOCK |
163 | |||||
DESCRIPTION
OF OTHER INDEBTEDNESS |
169 | |||||
INTERESTS OF
NAMED EXPERTS AND COUNSEL |
170 | |||||
LEGAL MATTERS
|
170 | |||||
EXPERTS
|
170 | |||||
WHERE YOU CAN
FIND MORE INFORMATION |
170 | |||||
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS |
F-1 |
|
Social Networking. Approximately 69% of our total net revenues for the nine months ended September 30, 2011 and 70% of our total net revenues for the year ended December 31, 2010 were generated through our targeted social networking technology platform. Our social networking technology platform provides users who register or purchase subscriptions to one or more of our websites with the ability to communicate and to establish new connections with other users via our personal chat rooms, instant messaging and e-mail applications and to create, post and view content of interest. We have been able to rapidly create and seamlessly maintain multiple websites tailored to specific categories or genres and designed to cater to targeted audiences with mutual interests. We believe that our ability to create and operate a diverse network of specific interest websites with unique, user-generated content in a cost-effective manner is a significant competitive differentiator that allows us to implement a subscription-fee based revenue model while many other popular social networking websites rely primarily upon free-access, advertising-based revenue models. |
|
Live Interactive Video. Approximately 24% of our total net revenues for the nine months ended September 30, 2011 and 22% of our total net revenues for the year ended December 31, 2010 were generated through our live interactive video technology platform. Our live interactive video technology platform is a live video broadcast platform that enables models to broadcast from independent studios throughout the world and interact with our users via instant messaging and video. We believe our live interactive video platform provides a unique offering including bi-directional and omni-directional video and interactive features that allow models to communicate with and attract users through a variety of mediums including |
blogs, newsletters and video. In addition, we believe the reliability of our live interactive video technology platform, which had approximately 99.1% uptime during 2010, is a key factor allowing us to maintain a large base of users. |
|
Visitors. Visitors are users who visit our websites but do not necessarily register. We believe we achieve large numbers of unique visitors because of our focus on continuously enhancing the user experience and expanding the breadth of our services. We had more than 196 million unique worldwide visitors in the month of December 2010, representing a growth of more than 300% from our approximately 46.9 million unique worldwide visitors in January 2009, according to comScore. |
|
Registrants. Registrants are visitors who complete a free registration form on one of our websites by giving basic identification information and submitting their e-mail address. For the nine months ended September 30, 2011, we averaged more than 6.4 million new registrations on our websites each month. For the year ended December 31, 2010, we averaged more than 6.4 million new registrations on our websites each month. Some of our registrants are also members, as described below. |
|
Members. Members are registrants who log into one of our websites and make use of our free products and services. For the nine months ended September 30, 2011, we averaged more than 4.0 million new members on our websites each month. For the year ended December 31, 2010, we averaged more than 3.9 million new members on our websites each month. |
|
Subscribers. Subscribers are members who purchase daily, three-day, weekly, monthly, quarterly, annual or lifetime subscriptions for one or more of our websites. Subscribers have full access to our websites and may access special features. For the nine months ended September 30, 2011, we had a monthly average of approximately 950 thousand and for the year ended December 31, 2010, we had a monthly average of approximately 1 million paying subscribers. |
|
Paid Users. Paid users are members who purchase products or services on a pay-by-usage basis. For the nine months ended September 30, 2011, we averaged approximately 2.9 million purchased minutes by paid users each month. For the year ended December 31, 2010, we averaged approximately 3.0 million purchased minutes by paid users each month. |
|
Average Revenue per Subscriber. We calculate average revenue per subscriber, or ARPU, by dividing net revenue for the period by the average number of subscribers in the period and by the number of months in the period. As such, our ARPU is a monthly calculation. For the nine months ended September 30, 2011, our average monthly revenue per subscriber was $20.22. For the year ended December 31, 2010, our average monthly revenue per subscriber was $20.49. |
|
Churn. Churn is calculated by dividing terminations of subscriptions during the period by the total number of subscribers at the beginning of that period. Our average monthly churn rate, which measures the rate |
of loss of subscribers, for the nine months ended September 30, 2011 was 16.3% per month. Our average monthly churn rate for the year ended December 31, 2010 was 16.1% per month. |
|
Cost Per Gross Addition. Cost per gross addition, or CPGA, is calculated by adding affiliate commission expense plus ad buy expenses and dividing by new subscribers during the measurement period. Our CPGA for the nine months ended September 30, 2011 was $42.76. Our CPGA for the year ended December 31, 2010 was $47.25. |
|
Average Lifetime Net Revenue Per Subscriber. Average Lifetime Net Revenue Per Subscriber is calculated by multiplying the average lifetime (in months) of a subscriber by ARPU for the measurement period and then subtracting the CPGA for the measurement period. Our Average Lifetime Net Revenue Per Subscriber for the nine months ended September 30, 2011 was $81.06. Our Average Lifetime Net Revenue Per Subscriber for the year ended December 31, 2010 was $80.17. While we monitor many statistics in the overall management of our business, we believe that Average Lifetime Net Revenue Per Subscriber and the number of subscribers are particularly helpful metrics for gaining a meaningful understanding of our business as they provide an indication of total revenue and profit generated from our base of subscribers inclusive of affiliate commissions and advertising costs required to generate new subscriptions. |
|
Proprietary and Scalable Technology Platform. Our robust, proprietary and highly scalable technology platform supports our social networking, live interactive video and premium content websites. We are able to use our customized back-end interface to quickly and affordably generate new websites, launch new features and target new audiences at a relatively low incremental cost. We believe that our ability to create new websites and provide new features is crucial to cost-effectively maintaining our relationships with existing users and attracting new users. |
|
Paid Subscriber-Based Model. We operate social networking websites that allow our members to make connections with other members with whom they share common interests. Our paid subscriber-based model of social networking websites is distinctly different from the business models of other free social networking websites whose users access the websites to remain connected to their pre-existing friends and interest groups. |
|
Large and Diverse User Base. We operate some of the most heavily visited social networking websites in the world, currently adding on average more than 6.4 million new registrants and more than 4.0 million new members each month. Our websites are designed to appeal to individuals with a diversity of interests and backgrounds. We believe potential members are attracted to the opportunity to interact with other individuals by having access to our large, diverse user base. |
|
Large and Difficult to Replicate Affiliate Network and Significant Marketing Spend. Our marketing affiliates are companies that market our services on their websites, allowing us to market our brand beyond our established user base. As of September 30, 2011 and December 31, 2010, we had more than 280,000 participants in our marketing affiliate program from which we derive a substantial portion of our new |
members and approximately 46% of our net revenues for the nine months ended September 30, 2011 and 45% of our net revenues for the year ended December 31, 2010. We believe that the difficulty in building an affiliate network of this large size, together with our combined affiliate and advertising spend for the nine months ended September 30, 2011 and the year ended December 31, 2010 of $64.5 million and $103.5 million, respectively, presents a significant barrier to entry for potential competitors. |
|
Convert Visitors, Registrants and Members into Subscribers or Paid Users. We continually seek to convert visitors, registrants and members into subscribers or paid users. We do this by constantly evaluating, adding and enhancing features on our websites to improve our users experience. |
|
Create Additional Websites and Diversify Offerings. We are constantly seeking to identify groups of sufficient size who share a common interest in order to create a website intended to appeal to their interests. Our extensive user database serves as an existing source of potential members and subscribers for new websites we create. |
|
Expand into and Monetize Current Foreign Markets. In 2010, nearly 71% of our members were outside the United States, but non-U.S. users accounted for less than half of our total net revenues. We seek to expand in selected geographic markets, including Southeast Europe, South America and Asia. |
|
Pursue Targeted Acquisitions. We intend to expand our business by acquiring and integrating additional social networking websites, technology platforms, owners, creators and distributors of content and payment processing and advertising businesses. Our management team possesses significant mergers and acquisitions and integration expertise and regularly screens the marketplace for strategic acquisition opportunities. |
|
Generate Online Advertising Revenue. To date, online advertising revenue has represented less than 0.1% of our net revenue, averaging approximately $8,000 per month in the nine months ended September 30, 2011 and $9,000 per month for the year ended December 31, 2010. With continued worldwide growth in this advertising segment, we see this as a significant growth opportunity. We believe that our broad and diverse user base represents a valuable asset that will provide opportunities for us to offer targeted online advertising to specific demographic groups. We intend to focus our advertising efforts on our general audience social networking websites and maintain our subscription-based model for our adult social networking websites. |
Issuers
|
FriendFinder Networks Inc. and Interactive Network, Inc., as co-issuers. |
|||||
Notes Offered by
the Selling Securityholders |
Up to
$ 235,331,887 aggregate principal amount of 14% Senior Secured Notes due 2013 (the Senior Secured Notes). |
|||||
Maturity Date
|
September 30, 2013. |
|||||
Interest Payment
Dates |
Quarterly, on March 31, June 30, September 30 and December 31 of each year, commencing December 31, 2010. |
|||||
Subsidiary
Guarantees |
Each
of our domestic subsidiaries set forth on Schedule A to this prospectus have guaranteed the Senior Secured Notes. The Senior Secured Notes may
be guaranteed by additional subsidiaries in the future under certain circumstances. |
|||||
Ranking
|
The
Senior Secured Notes and the guarantees are our and the guarantors senior first-priority secured obligations and are: secured on a first-priority basis, by liens on all of our and the guarantors assets, including without limitation, receivables, inventory, furniture, fixtures, equipment, trademarks, copyrights and other intangibles, real property and the capital stock of subsidiaries, including a 100% pledge of the co-issuers stock, subject to customary exceptions; senior in right of payment to the Non-Cash Pay Notes, but not the Cash Pay Notes with certain exceptions; and pari passu in right of payment to the Cash Pay Notes, with certain exceptions. |
|||||
Optional
Redemption |
The
Senior Secured Notes are redeemable prior to maturity at our option in whole but not in part, at 110% of principal, plus accrued and unpaid
interest. |
|||||
Change of Control
|
Upon
a change of control (as defined in the section entitled Description of Notes), we must offer to repurchase the Senior Secured Notes at 110%
of the principal amount, plus accrued and unpaid interest to the purchase date. |
|||||
Certain Covenants
|
The
Senior Secured Notes Indenture contains certain covenants, including limitations and restrictions on our and our domestic subsidiaries ability
to: incur additional indebtedness; make dividend payments or other restricted payments; create liens; change the nature of its business modify the provisions of any indebtedness, organizational documents and certain other agreements; |
enter into transactions with affiliates; and engage in fundamental changes, dispositions or acquisitions with respect to all or any part of our business, property or assets. As of the date of this prospectus, all of our domestic subsidiaries are set forth on Schedule A to this prospectus. Our foreign subsidiaries will not be subject to any of the restrictive covenants in the Senior Secured Notes Indenture. The restrictive covenants set forth in the Senior Secured Notes Indenture are subject to important exceptions and qualifications. See the section entitled Description of Notes for more information. |
||||||
Conversion Rights
|
None. |
|||||
Risk Factors
|
Potential investors in the Senior Secured Notes should carefully consider the matters set forth under the caption Risk Factors prior to
making an investment decision with respect to the Senior Secured Notes. |
|||||
Use of Proceeds
|
We
are not selling any securities under this prospectus and we will not receive any proceeds from the sale of Senior Secured Notes by the selling
securityholders. |
Issuers
|
FriendFinder Networks Inc. and Interactive Network, Inc., as co-issuers. |
|||||
Notes Offered by
the Selling Securityholders |
Up to
$10,630,667 aggregate principal amount of 14% Cash Pay Secured Notes Due 2013 (the Cash Pay Notes). |
|||||
Maturity Date
|
September 30, 2013. |
|||||
Interest Payment
Dates |
Quarterly, on March 31, June 30, September 30 and December 31 of each year, commencing December 31, 2010. |
|||||
Subsidiary
Guarantees |
Each
of our domestic subsidiaries set forth on Schedule A to this prospectus have guaranteed the Cash Pay Notes. The Cash Pay Notes may be guaranteed
by additional subsidiaries in the future under certain circumstances. |
|||||
Ranking
|
The
Cash Pay Notes and the guarantees are our and the guarantors subordinated second-priority secured obligations and are: secured on a second-priority basis, by liens on all of our and the guarantors assets, including without limitation, receivables, inventory, furniture, fixtures, equipment, trademarks, copyrights and other intangibles, real property and the capital stock of subsidiaries, including a 100% pledge of the co-issuers stock, subject to customary exceptions; and pari passu in right of payment to the Senior Secured Notes, with certain exceptions. |
|||||
Optional
Redemption |
The
New Cash-Pay Notes are redeemable prior to maturity at our option in whole but not in part, at 110% of principal, plus accrued and unpaid interest. See
the section entitled Description of Notes for more information. |
Change of Control
|
Upon
a change of control (as defined in the section entitled Description of Notes), we must offer to repurchase the Cash Pay Notes at 110% of
the principal amount, plus accrued and unpaid interest to the purchase date. |
|||||
Certain Covenants
|
The
Cash Pay Notes Indenture contains certain covenants, including limitations and restrictions on our and our domestic subsidiaries ability to: incur additional indebtedness; make dividend payments or other restricted payments; create liens; change the nature of its business; modify the provisions of any indebtedness, organizational documents and certain other agreements; enter into transactions with affiliates; and engage in fundamental changes, dispositions or acquisitions with respect to all or any part of our business, property or assets. As of the date of this prospectus, all of our domestic subsidiaries are set forth on Schedule A to this prospectus. Our foreign subsidiaries will not be subject to any of the restrictive covenants in the Cash Pay Notes Indenture. The restrictive covenants set forth in the Cash Pay Notes Indenture are subject to important exceptions and qualifications. See the section entitled Description of Notes for more information. |
|||||
Conversion
Rights |
None. |
|||||
Risk Factors
|
Potential investors in the Cash Pay Notes should carefully consider the matters set forth under the caption Risk Factors prior to
making an investment decision with respect to the Cash Pay Notes. |
|||||
Use of Proceeds
|
We
are not selling any securities under this prospectus and we will not receive any proceeds from the sale of Cash Pay Notes by the selling
securityholders. |
Issuers
|
FriendFinder Networks Inc. and Interactive Network, Inc., as co-issuers. |
|||||
Notes Offered by
the Selling Securityholders |
Up to
$344,469,891 aggregate principal amount of 11.5% Convertible Non-Cash Pay Secured Notes Due 2014 (the Non-Cash Pay Notes), which includes
$93,620,766 of Non-Cash Pay Notes that may be paid-in-kind in respect of future interest payments. |
|||||
Maturity Date
|
April
30, 2014. |
|||||
Interest Payment
Dates |
Payable semi-annually, on June 30 and December 31 of each year, commencing on December 31, 2010. While the Senior Secured Notes are in place,
interest must be paid-in-kind with additional Non-Cash Pay Notes and after the Senior Secured Notes have been repaid in full, the Issuers may pay
interest in cash or with additional Non-Cash Pay Notes. |
Subsidiary
Guarantees |
Each
of our domestic subsidiaries set forth on Schedule A to this prospectus have guaranteed the Non-Cash Pay Notes. The Non-Cash Pay Notes may be
guaranteed by additional subsidiaries in the future under certain circumstances. |
|||||
Ranking
|
The
Non-Cash Pay Notes and the guarantees are our and the guarantors subordinated second-priority secured obligations and are: secured on a second-priority basis, by liens on all of our and the guarantors assets, including without limitation, receivables, inventory, furniture, fixtures, equipment, trademarks, copyrights and other intangibles, real property and the capital stock of subsidiaries, including a 100% pledge of the co-issuers stock, subject to customary exceptions; and subordinate in right of payment to the Senior Secured Notes and the Cash Pay Notes, with certain exceptions. |
|||||
Optional
Redemption |
The
Non-Cash Pay Notes are redeemable prior to maturity at our option in whole but not in part, at 100% of principal, plus accrued and unpaid interest,
subject to the rights of the holders of the Senior Secured Notes under the intercreditor agreement (the Intercreditor Agreement) by and
between the holders of the Old Notes, which provides that no redemption of the Non-Cash Pay Notes may occur until the Senior Secured Notes are repaid
in full. See section entitled Description of Notes for more information. |
|||||
Change of Control
|
Upon
a change of control (as defined in the section entitled Description of Notes), we must offer to repurchase the Non-Cash Pay Notes at 110%
of the principal amount, plus accrued and unpaid interest to the purchase date. |
|||||
Certain Covenants
|
The
Non-Cash Pay Notes Indenture contains certain covenants, including limitations and restrictions on our and our domestic subsidiaries ability
to: incur additional indebtedness; make dividend payments or other restricted payments; create liens; change the nature of its business, modify the provisions of any indebtedness, organizational documents and certain other agreements; enter into transactions with affiliates; and engage in fundamental changes, dispositions or acquisitions with respect to all or any part of our business, property or assets. As of the date of this prospectus, all of our domestic subsidiaries are set forth on Schedule A to this prospectus. Our foreign subsidiaries will not be subject to any of the restrictive covenants in the Non-Cash Pay Notes Indenture. The restrictive covenants set forth in the Non-Cash Pay Notes Indenture are subject to important exceptions and qualifications. See the section entitled Description of Notes for more information. |
Conversion Rights
|
Pursuant to Non-Cash Pay Notes Indenture, you may opt to convert your Non-Cash Pay Notes, or any portion of the principal amount thereof, into
shares of our common stock at a conversion price equal to the price per share of common stock offered upon the consummation of our initial public
offering on May 16, 2011, or $10.00 per share, up until the close of business on the day prior to the date of payment in full of the Non-Cash Pay
Notes. The aggregate shares of our common stock available in such conversion shall be limited to 8,310,763 shares of our common stock, or approximately
21.1% of our fully diluted equity as of the date our initial public offering was consummated, pursuant to the Non-Cash Pay Notes Indenture. For more
information on your conversion rights, see the section entitled, Description of Notes. |
|||||
Risk Factors
|
Potential investors in the Non-Cash Pay Notes should carefully consider the matters set forth under the caption Risk Factors prior to
making an investment decision with respect to the Non-Cash Pay Notes and/or converting the Non-Cash Pay Notes to shares of our common
stock. |
|||||
Use of Proceeds
|
We
are not selling any securities under this prospectus and we will not receive any proceeds from the sale of Non-Cash Pay Notes by the selling
securityholders. |
Issuer
|
FriendFinder Networks Inc. |
|||||
Common Stock
Offered by the Selling Securityholders |
The
selling securityholders are offering up to an aggregate of 31,007,466 shares of common stock, consisting of i) 22,696,703 shares of our
common stock held outright by various stockholders of FriendFinder Networks Inc. (the Outstanding Shares); and ii) 8,310,763 shares of our
common stock issuable upon the conversion of all of the Non-Cash Pay Notes into shares of our common stock (the Note Shares and together
with the Outstanding Shares, the Registrable Shares). For information concerning the selling stockholders and the manner in which they may
offer and sell shares of our common stock, see Selling Stockholders and Plan of Distribution in this
prospectus. |
|||||
Outstanding
Shares of Common Stock |
As of
December 14 , 2011, 31,219,644 shares of our common stock were issued and outstanding. |
|||||
Risk Factors
|
Potential investors in the common stock should carefully consider the matters set forth under the caption Risk Factors prior to making
an investment decision with respect to the common stock. |
|||||
Use of
Proceeds |
We
are not selling any securities under this prospectus and we will not receive any proceeds from the sale of shares by the selling stockholders. No
consideration will be paid in connection with the conversion of the Non-Cash Pay Notes to Note Shares. |
|
the number of noteholders; |
|
our operating performance and financial condition; |
|
the market for similar securities; |
|
the interest of securities dealers in making a market in the Registrable Notes; and |
|
prevailing interest rates. |
|
incurred the obligations with the intent to hinder, delay or defraud creditors; or |
|
received less than reasonably equivalent value, or did not receive fair consideration, in exchange for incurring those obligations; and |
(1) |
was insolvent or rendered insolvent by reason of that incurrence; |
(2) |
was engaged in a business or transaction for which the subsidiarys remaining assets constituted unreasonably small capital; or |
(3) |
intended to incur, or believed that it would incur, debts beyond its ability to pay those debts as they mature. |
|
the sum of its debts, including contingent liabilities, is greater than the fair saleable value of all of its assets; |
|
the present fair saleable value of its assets is less than the amount that would be required to pay its probable liabilities on its existing debts, including contingent liabilities, as they become absolute and mature; or |
|
it cannot pay its debts as they become due. |
|
Quarterly variations in our results of operations or those of our competitors. |
|
Announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments. |
|
Disruption to our operations or those of our marketing affiliates. |
|
The emergence of new sales channels in which we are unable to compete effectively. |
|
Our ability to develop and market new and enhanced products on a timely basis. |
|
Commencement of, or our involvement in, litigation. |
|
Any major change in our board or management. |
|
Changes in governmental regulations or in the status of our regulatory approvals. |
|
Changes in earnings estimates or recommendations by securities analysts. |
|
General economic conditions and slow or negative growth of related markets. |
|
establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; |
|
authorize our board of directors to issue blank check preferred stock to increase the number of outstanding shares and thwart a takeover attempt; |
|
require the written request of at least 75% of the voting power of our capital stock in order to compel management to call a special meeting of the stockholders; and |
|
prohibit stockholder action by written consent and require that all stockholder actions be taken at a meeting of our stockholders, unless otherwise specifically required by our articles of incorporation or the Nevada Revised Statutes. |
|
we may be unable to obtain additional financing for working capital, capital expenditures, acquisitions, repayment of debt at maturity and other general corporate purposes; |
|
a significant portion of our cash flow from operations must be dedicated to debt service, which reduces the amount of cash we have available for other purposes; |
|
we may be disadvantaged as compared to our competitors, such as in our ability to adjust to changing market conditions, as a result of the amount of debt we owe; |
|
we may be restricted in our ability to make strategic acquisitions and to exploit business opportunities; and |
|
additional dilution of stockholders may be required to service our debt. |
|
incur or guarantee additional indebtedness; |
|
repurchase capital stock; |
|
make loans and investments; |
|
enter into agreements restricting our subsidiaries abilities to pay dividends; |
|
grant liens on assets; |
|
sell or otherwise dispose of assets; |
|
enter new lines of business; |
|
merge or consolidate with other entities; and |
|
engage in transactions with affiliates. |
|
if we experience excessive chargebacks and/or credits; |
|
if we experience excessive fraud ratios; |
|
if there is an adverse change in policy of the acquiring banks and/or card associations with respect to the processing of credit card charges for adult-related content; |
|
if there is an increase in the number of European and U.S. banks that will not accept accounts selling adult-related content; |
|
if there is a breach of our security resulting in the theft of credit card data; |
|
if there is continued tightening of credit card association chargeback regulations in international commerce; |
|
if there are association requirements for new technologies that consumers are less likely to use; and |
|
if negative global economic conditions result in credit card companies denying more transactions. |
|
cause our customers to lose confidence in our services; |
|
deter consumers from using our services; |
|
harm our reputation; |
|
require that we expend significant additional resources related to our information security systems and result in a disruption of our operations; |
|
expose us to liability; |
|
subject us to unfavorable regulatory restrictions and requirements imposed by the Federal Trade Commission or similar authority; |
|
cause us to incur expenses related to remediation costs; and |
|
decrease market acceptance of the use of e-commerce transactions. |
|
Internet. Several U.S. governmental agencies are considering a number of legislative and regulatory proposals that may lead to laws or regulations concerning different aspects of the internet, including social networking, online content, intellectual property rights, e-mail, user privacy, taxation, access charges, liability for third-party activities and personal jurisdiction. New Jersey enacted the Internet Dating Safety Act in 2008, which requires online dating services to disclose whether they perform criminal background screening practices and to offer safer dating tips on their websites. Other states have enacted or considered enacting similar legislation. While online dating and social networking websites are not currently required to verify the age or identity of their members or to run criminal background checks on them, any such requirements could increase our cost of operations or discourage use of our services. The Childrens Online Privacy Protection Act (COPPA) restricts the ability of online services to collect information from minors. The Protection of Children from Sexual Predators Act of 1998 requires online service providers to report evidence of violations of federal child pornography laws under certain circumstances. |
|
Commercial advertising. We receive a significant portion of our print publications advertising revenue from companies that sell tobacco products. Significant limitations on the ability of those companies to advertise in our publications or on our websites because of legislative, regulatory or court action could materially adversely affect our business, financial condition and results of operations. |
|
Adult content. Regulation, investigations and prosecutions of adult content could prevent us from making such content available in certain jurisdictions or otherwise have a material adverse effect on our business, financial condition and results of operations. Government officials may also place additional restrictions on adult content affecting the way people interact on the internet. The governments of some countries, such as China and India, have sought to limit the influence of other cultures by restricting the distribution of products deemed to represent foreign or immoral influences. Regulation aimed at limiting minors access to adult content both in the United States and abroad could also increase our cost of operations and introduce technological challenges by requiring development and implementation of age verification systems. U.S. government officials could amend or construe and seek to enforce more broadly or aggressively the adult content recordkeeping and labeling requirements set forth in 18 U.S.C. Section 2257 and its implementing regulations in a manner that is unfavorable to our business. Court rulings may place additional restrictions on adult content affecting how people interact on the internet, such as mandatory web labeling. |
|
unforeseen operating difficulties and expenditures arising from the process of integrating any acquired business, product or technology, including related personnel, and maintaining uniform standards, controls, procedures and policies; |
|
diversion of a significant amount of managements attention from the ongoing development of our business; |
|
dilution of existing stockholders ownership interests; |
|
incurrence of additional debt; |
|
exposure to additional operational risks and liabilities, including risks and liabilities arising from the operating history of any acquired businesses; |
|
negative effects on reported results of operations from acquisition-related charges and amortization of acquired intangibles; |
|
entry into markets and geographic areas where we have limited or no experience; |
|
the potential inability to retain and motivate key employees of acquired businesses; |
|
adverse effects on our relationships with suppliers and customers; and |
|
adverse effects on the existing relationships of any acquired companies, including suppliers and customers. |
|
competition from pre-existing competitors with significantly stronger brand recognition in the markets we enter; |
|
our erroneous evaluations of the potential of such markets; |
|
diversion of capital and other valuable resources away from our core business; |
|
foregoing opportunities that are potentially more profitable; and |
|
weakening our current brands by over expansion into too many new markets. |
|
challenges caused by distance, language and cultural differences; |
|
local competitors with substantially greater brand recognition, more users and more traffic than we have; |
|
challenges associated with creating and increasing our brand recognition, improving our marketing efforts internationally and building strong relationships with local affiliates; |
|
longer payment cycles in some countries; |
|
credit risk and higher levels of payment fraud in some countries; |
|
different legal and regulatory restrictions among jurisdictions; |
|
political, social and economic instability; |
|
potentially adverse tax consequences; and |
|
higher costs associated with doing business internationally. |
Name of Selling Securityholder |
Principal Amount of Notes Outstanding That are Owned and That May Be Sold Pursuant to This Prospectus* |
Principal Amount of Notes Beneficially Owned After Completion of the Offering |
Percentage of Aggregate Principal Amount of Notes Beneficially Owned After Completion of the Offering(1) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ADVANCED
SERIES TRUSTAST ACADEMIC STRATEGIES ASSET ALLOCATION PORTFOLIO(2) |
$ | 88,732 | 0 | | ||||||||||
AMERICAN
BEACON SIM HIGH YIELD OPPORTUNITIES FUND(3) |
$ | 650,000 | 0 | | ||||||||||
ANDREW B
CONRU TRUST(4) |
$ | 77,157,996 | 0 | | ||||||||||
AQR DELTA
MASTER ACCOUNT, L.P.(5) |
$ | 702,138 | 0 | | ||||||||||
AQR DELTA
SAPPHIRE FUND, L.P.(6) |
$ | 104,164 | 0 | | ||||||||||
AQR
FUNDSAQR DIVERSIFIED ARBITRAGE FUND(7) |
$ | 856,454 | 0 | | ||||||||||
AQR
OPPORTUNISTIC PREMIUM OFFSHORE FUND, L.P.(8) |
$ | 111,879 | 0 | | ||||||||||
CNH
DIVERSIFIED OPPORTUNITIES MASTER ACCOUNT, L.P.(9) |
$ | 65,585 | 0 | | ||||||||||
DEL MAR
MASTER FUND, LTD(10) |
$ | 19,227,391 | 0 | |
Name of Selling Securityholder |
Principal Amount of Notes Outstanding That are Owned and That May Be Sold Pursuant to This Prospectus* |
Principal Amount of Notes Beneficially Owned After Completion of the Offering |
Percentage of Aggregate Principal Amount of Notes Beneficially Owned After Completion of the Offering(1) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
PERMAL
CAPITAL STRUCTURE OPPORTUNITIES, LTD(11) |
$ | 1,410,000 | 0 | | ||||||||||
QWEST PENSION
TRUST(12) |
$ | 1,025,000 | 0 | | ||||||||||
ROCKVIEW
SHORT ALPHA FUND, LTD(13) |
$ | 3,351,445 | 0 | | ||||||||||
ROCKVIEW
TRADING, LTD(14) |
$ | 24,843,719 | 0 | | ||||||||||
STONEHILL
INSTITUTIONAL PARTNERS LP(15) |
$ | 19,300,721 | 0 | | ||||||||||
STONEHILL
MASTER FUND LTD(16) |
$ | 23,755,535 | 0 | | ||||||||||
THORNBURG
STRATEGIC INCOME FUND(17) |
$ | 578,685 | 0 | | ||||||||||
VISIUM
BALANCED MASTER FUND LTD(18) |
$ | 1,424,400 | 0 | | ||||||||||
VISIUM CREDIT
MASTER FUND LTD(19) |
$ | 17,304,633 | 0 | | ||||||||||
VISIUM EQUITY
GLOBAL MASTER FUND LTD(20) |
$ | 4,459,650 | 0 | | ||||||||||
TOTAL
|
$ | 196,418,127 | 0 | |
* |
Amounts have been rounded to the nearest dollar. |
|
Less than 1%. |
(1) |
Based on the aggregate principal amount of Senior Secured Notes outstanding of $235,331,887. |
(2) |
Advanced Series Trust AST Academic Strategies Asset Allocation Portfolio (AST) is an affiliate of Pruco Securities, LLC, Prudential Investment Management Services LLC and Prudential Annuities Distributors, Inc., which are broker-dealers registered pursuant to Section 15 of the Securities and Exchange Act of 1934. AST purchased the notes in the ordinary course of business and at the time of the purchase of the notes, it had no agreements or understandings with any person to distribute the securities. CNH Partners, LLC is the sub-advisor of AST. CNH Partners, LLC is controlled indirectly by Mr. Todd Pulvino and Mr. Mark Mitchell. Accordingly, Mr. Pulvino and Mr. Mitchell share voting and investment power over the notes owned by AST. AQR Capital Management, LLC acts as the investment manager to the Diversified Arbitrage investment arm of AST. The address of AST is c/o AQR Capital Management, LLC, Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830. |
(3) |
Strategic Income Management is the investment subadvisor to American Beacon Sim High Yield Opportunities Fund. Mr. Gary Pokrzywinski is the portfolio manager of Strategic Income Management and has sole voting and investment power over the notes owned by American Beacon Sim High Yield Opportunities Fund. The address of American Beacon Sim High Yield Opportunities Fund is 4151 Amon Carter Blvd., MD 2450, Fort Worth, TX 76155. |
(4) |
To the best of our knowledge, Andrew Conru holds voting and investment power over the notes owned by the Andrew B. Conru Trust. The address of the Andrew B. Conru Trust is c/o Bose McKinney & Evans LLP 111 Monument Circle, Suite 2700, Indianapolis, IN 46204. |
(5) |
The general partner of AQR DELTA Master Account, L.P. is AQR Capital Management III, LLC. AQR Capital Management, LLC is the sole member of AQR Capital Management III, LLC. AQR Capital Management Holdings, LLC is the sole member of AQR Capital Management, LLC. Mr. Clifford S. Asness is a greater than 25% shareholder of AQR Capital Management Holdings, LLC. CNH Partners, LLC is the sub-advisor of AQR DELTA Master Account, L.P. CNH Partners, LLC is controlled indirectly by Mr. Todd Pulvino and Mr. Mark Mitchell. Accordingly, Mr. Pulvino and Mr. Mitchell share voting and investment power over the notes owned by AQR DELTA Master Account, L.P. The address of AQR DELTA Master Account, L.P. is c/o AQR Capital Management, LLC, Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830. |
(6) |
The general partner of AQR DELTA Sapphire Fund, L.P. is AQR Capital Management II, LLC. AQR Capital Management, LLC is the sole member of AQR Capital Management II, LLC. AQR Capital Management Holdings, LLC is the sole member of AQR Capital Management, LLC. Mr. Clifford S. Asness is a greater than 25% shareholder of AQR Capital Management Holdings, LLC. CNH Partners, LLC is the sub-advisor of AQR DELTA Sapphire Fund, L.P. CNH Partners, LLC is controlled indirectly by Mr. Todd Pulvino and Mr. Mark Mitchell. Accordingly, Mr. Pulvino and Mr. Mitchell share voting and investment power over the notes owned by AQR DELTA Sapphire Fund, L.P. The address of AQR DELTA Sapphire Fund, L.P. is c/o AQR Capital Management, LLC, Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830. |
(7) |
CNH Partners, LLC is the sub-advisor of AQR Funds AQR Diversified Arbitrage Fund. CNH Partners, LLC is controlled indirectly by Mr. Todd Pulvino and Mr. Mark Mitchell. Accordingly, Mr. Pulvino and Mr. Mitchell share voting and investment power over the notes owned by AQR Funds AQR Diversified Arbitrage Fund. AQR Funds AQR Diversified Arbitrage Fund is a series of the Delaware Statutory Trust, AQR Funds (the Trust). AQR Capital Management, LLC acts as the investment advisor to the Trust. The address of AQR Funds AQR Diversified Arbitrage Fund is c/o AQR Capital Management, LLC, Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830. |
(8) |
The general partner of AQR Opportunistic Premium Offshore Fund, L.P. is AQR Capital Management III, LLC. AQR Capital Management, LLC is the sole member of AQR Capital Management III, LLC. AQR Capital Management Holdings, LLC is the sole member of AQR Capital Management, LLC. Mr. Clifford S. Asness is a greater than 25% shareholder of AQR Capital Management Holdings, LLC. CNH |
Partners, LLC is the sub-advisor of AQR Opportunistic Premium Offshore Fund, L.P. CNH Partners, LLC is controlled indirectly by Mr. Todd Pulvino and Mr. Mark Mitchell. Accordingly, Mr. Pulvino and Mr. Mitchell share voting and investment power over the notes owned by AQR Opportunistic Premium Offshore Fund, L.P. The address of AQR Opportunistic Premium Offshore Fund, L.P. is c/o AQR Capital Management, LLC, Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830. |
(9) |
The general partner of CNH Diversified Opportunities Master Account, L.P. is CNH Principal Partners I, LLC. CNH Partners, LLC is the sole member of CNH Principal Partners I, LLC. RAIM Corp. is a 50% owner of CNH Partners, LLC. Mr. Todd Pulvino and Mr. Mark Mitchell are each 50% owners of RAIM Corp. AQR Capital Management, LLC is a 50% owner of CNH Partners, LLC. AQR Capital Management Holdings, LLC is the sole member of AQR Capital Management, LLC. Mr. Clifford S. Asness is a greater than 25% shareholder of AQR Capital Management Holdings, LLC. CNH Partners, LLC is the sub-advisor of CNH Diversified Opportunities Master Account, L.P. CNH Partners, LLC is controlled indirectly by Mr. Todd Pulvino and Mr. Mark Mitchell. Accordingly, Mr. Pulvino and Mr. Mitchell share voting and investment power over the notes owned by CNH Diversified Opportunities Master Account, L.P. The address of CNH Diversified Opportunities Master Account, L.P. is Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830. |
(10) |
Mr. Marc Simon is the Director of Del Mar Master Fund, Ltd. Del Mar Asset Management, LP is the advisor to Del Mar Master Fund, Ltd. The general partner of Del Mar Asset Management, LP is Del Mar Management, LLC. David Freelove is the president, chief executive officer and a managing member of Del Mar Management, LLC and has sole voting and investment power over the notes owned by Del Mar Master Fund, Ltd. The address of Del Mar Master Fund, Ltd. is c/o Walkers Financial Svcs, 83 Mary St., Georgetown, Grand Cayman KY1-9005 Cayman Islands. |
(11) |
Sandler Capital Management is the Investment Manager for Permal Capital Structure Opportunities, Ltd. (PCSO) and SERF Corp. is a General Partner in Sandler Capital Management. The controlling entity of PCSO is Citco Bank and Trust Company, Ltd. Mr. Doug Schimmel holds sole voting and investment power over the notes held by Permal Capital Structure Opportunities, Ltd. The address of PCSO is 711 5th Ave., 15th Floor, New York, NY 10022. |
(12) |
GoldenTree Asset Management LP, a Delaware limited partnership, is the investment manager to Qwest Pension Trust. The general partner of GoldenTree Asset Management LP is GoldenTree Asset Management LLC. The senior managing member and sole member of GoldenTree Asset Management LLC is Mr. Steven A. Tananbaum, who has sole voting and investment power over the notes owned by Qwest Pension Trust. The address for Qwest Pension Trust is c/o GoldenTree Asset Management, LP, 485 Lexington Ave., 15th Floor, New York, NY 10017. |
(13) |
Mr. Kevin Schweitzer is the managing member of Zabak Capital, LLC and holds sole voting and investment power over the notes owned by Rockview Short Alpha Fund, Ltd. Zabak Capital, LLC is the managing member of Rockview Management, LLC. Rockview Management, LLC is the investment manager to Rockview Short Alpha Fund, Ltd. The address of Rockview Short Alpha Fund, Ltd. is MetroCenter, One Station Place, 7th Floor, Stamford, CT 06902. |
(14) |
Mr. Kevin Schweitzer is the managing member of Zabak Capital, LLC and holds sole voting and investment power over the notes owned by RockView Trading, Ltd. Zabak Capital, LLC is the managing member of RockView Management LLC. Rockview Management, LLC is the investment manager to RockView Trading, Ltd. The address of Rockview Trading, Ltd. is MetroCenter, One Station Place, 7th Floor, Stamford, CT 06902. |
(15) |
Stonehill Capital Management LLC, a Delaware limited liability company (SCM), is the investment advisor of Stonehill Institutional Partners, L.P. (Stonehill Institutional) and Stonehill General Partner, LLC, (Stonehill GP) is the General Partner of Stonehill Institutional. Mr. John Motulsky, Mr. Christopher Wilson, Mr. Wayne Teetsel, Mr. Thomas Varkey, Mr. Jonathan Sacks, Mr. Peter Sisitsky and Mr. Michael Thoyer (collectively, the Members) are the managing members of SCM and Stonehill GP and therefore share voting and investment power over the notes owned by Stonehill Institutional. The address of Stonehill Institutional is c/o Stonehill Capital Management LLC, 885 Third Avenue, 30th Floor, New York, NY 10022. |
(16) |
Stonehill Capital Management LLC, a Delaware limited liability company (SCM) is the investment advisor of Stonehill Master Fund Ltd (Stonehill Master). Mr. John Motulsky, Mr. Christopher Wilson, Mr. Wayne Teetsel, Mr. Thomas Varkey, Mr. Jonathan Sacks, Mr. Peter Sisitsky and Mr. Michael Thoyer (collectively, the Members) are the managing members of SCM and therefore share voting and investment power over the notes owned by Stonehill Master. The address of Stonehill Master is c/o Stonehill Capital Management LLC, 885 Third Avenue, 30th Floor, New York, NY 10022. |
(17) |
Thornburg Strategic Income Fund is an affiliate of a broker-dealer registered pursuant to Section 15 of the Securities and Exchange Act of 1934. Thornburg Strategic Income Fund purchased the notes in the ordinary course of business and at the time of the purchase of the notes, it had no agreements or understandings with any person to distribute the securities. Mr. Jason Brady is the portfolio manager of Thornburg Strategic Income Fund and therefore has sole voting and investment power over the notes owned by Thornburg Strategic Income Fund. The address of Thornburg Strategic Income Fund is 2300 North Ridgetop Road, Santa Fe, NM 87506. |
(18) |
Visium Asset Management, LP has discretionary trading authority over these notes. The General Partner of Visium Asset Management, LP is JG Asset, LLC. Mr. Jacob Gottlieb and Mr. Mark Gottlieb are the holders of membership interests in JG Asset, LLC and therefore share voting and investment power over the notes owned by Visium Balanced Master Fund Ltd. The address of Visium Balanced Master Fund, Ltd. is c/o Visium Asset Management, LP, 950 Third Avenue, 29th Floor, New York, NY 10022. |
(19) |
Visium Asset Management, LP has discretionary trading authority over these notes. The General Partner of Visium Asset Management, LP is JG Asset, LLC. Mr. Jacob Gottlieb and Mr. Mark Gottlieb are the holders of membership interests in JG Asset, LLC and therefore share voting and investment power over the notes owned by Visium Credit Master Fund Ltd. The address of Visium Credit Master Fund, Ltd. is c/o Visium Asset Management, LP, 950 Third Avenue, 29th Floor, New York, NY 10022. |
(20) |
Visium Asset Management, LP has discretionary trading authority over these notes. The General Partner of Visium Asset Management, LP is JG Asset, LLC. Mr. Jacob Gottlieb and Mr. Mark Gottlieb are the holders of membership interests in JG Asset, LLC and therefore share voting and investment power over the notes owned by Visium Equity Global Master Fund Ltd. The address of Visium Equity Global Master Fund, Ltd. is c/o Visium Asset Management, LP, 950 Third Avenue, 29th Floor, New York, NY 10022. |
Name of Selling Securityholder |
Principal Amount of Notes Outstanding That are Owned and That May Be Sold Pursuant to This Prospectus* |
Principal Amount of Notes Beneficially Owned After Completion of the Offering |
Percentage of Aggregate Principal Amount of Notes Beneficially Owned After Completion of the Offering(1) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
MARC H.
BELL(2) |
$ | 5,315,333 | 0 | | ||||||||||
STATON FAMILY
INVESTMENTS LTD(3) |
$ | 5,315,333 | 0 | | ||||||||||
TOTAL
|
$ | 10,630,66 7 | 0 | |
* |
Amounts have been rounded to the nearest dollar. |
|
Less than 1%. |
(1) |
Based on the aggregate principal amount of Cash Pay Notes outstanding of $10,630,66 7 . |
(2) |
Marc H. Bell is our Chief Executive Officer, President and a Director. |
(3) |
Daniel C. Staton, our Chairman of the Board, is a member of Staton Family Investments, Ltd. and has sole voting and investment power over the notes owned by Staton Family Investments, Ltd. The address of Staton Family Investments, Ltd. is 6800 Broken Sound Parkway, Boca Raton, FL 33487. |
Name of Selling Securityholder |
Aggregate Principal Amount of Notes Owned and Outstanding* |
Aggregate Principal Amount of Notes Paid-In Kind That May Be Paid(1)* |
Aggregate Principal Amount of Notes That May be Sold* |
Number of Shares of Common Stock Owned Upon Full Conversion of Notes |
Number of Shares Of Common Stock Owned Outright |
Aggregate Number of Shares of Common Stock That May Be Sold Pursuant to This Prospectus(2) |
Principal Amount of Notes Beneficially Owned After This Offering |
Percentage of Principal Amount of Notes Beneficially Owned After This Offering(3) |
Number of Shares of Common Stock Owned After This Offering(4) |
Percentage of Shares of Common Stock Owned After This Offering(4),(5) |
||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ABSOLUTE
INCOME FUND, LP(6) |
$ | | $ | | $ | | | 1,991,703 | 1,991,703 | | | 0 | | |||||||||||||||||||||||||||||
ADVANCED
SERIES TRUST AST ACADEMIC STRATEGIES ASSET ALLOCATION PORTFOLIO(7) |
$ | 237,938 | $ | 88,802 | $ | 326,739 | 7,883 | | 7,883 | 0 | | 0 | | |||||||||||||||||||||||||||||
ANDREW B.
CONRU TRUST(8) |
$ | 165,409,752 | $ | 61,733,473 | $ | 227,143,225 | 5,480,112 | 3,380,879 | 8,860,991 | 0 | | 0 | | |||||||||||||||||||||||||||||
AQR
DIVERSIFIED ARBITRAGE FUND(9) |
$ | 2,405,813 | $ | 897,886 | $ | 3,303,699 | 79,706 | | 79,706 | 0 | | 0 | | |||||||||||||||||||||||||||||
AQR
OPPORTUNISTIC PREMIUM OFFSHORE FUND LP(10) |
$ | 264,375 | $ | 98,669 | $ | 363,044 | 8,759 | | 8,759 | 0 | | 0 | | |||||||||||||||||||||||||||||
BELL FAMILY
2003 CHARITABLE LEAD ANNUITY TRUST(11) |
$ | | $ | | $ | | | 184,190 | 184,190 | | | 0 | | |||||||||||||||||||||||||||||
MARC H.
BELL(12) |
$ | | $ | | $ | | | 5,147,671 | 5,087,668 | | | 60,003 | | |||||||||||||||||||||||||||||
BESSEMER
TRUST COMPANY, N.A. AND MATTHEW SMYTH AS TRUSTEES OF THE DIETRICH WEISMANN SETTLEMENT TRUST A(13) |
$ | | $ | | $ | | | 1,883 | 1,883 | | | 0 | |
Name of Selling Securityholder |
Aggregate Principal Amount of Notes Owned and Outstanding* |
Aggregate Principal Amount of Notes Paid-In Kind That May Be Paid(1)* |
Aggregate Principal Amount of Notes That May be Sold* |
Number of Shares of Common Stock Owned Upon Full Conversion of Notes |
Number of Shares Of Common Stock Owned Outright |
Aggregate Number of Shares of Common Stock That May Be Sold Pursuant to This Prospectus(2) |
Principal Amount of Notes Beneficially Owned After This Offering |
Percentage of Principal Amount of Notes Beneficially Owned After This Offering(3) |
Number of Shares of Common Stock Owned After This Offering(4) |
Percentage of Shares of Common Stock Owned After This Offering(4),(5) | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
BESSEMER
TRUST COMPANY, N.A. AND ROGER KIMBALL AS TRUSTEES OF THE DIETRICH WEISMANN SETTLEMENT TRUST B(14) |
$ | | $ | | $ | | | 2,152 | 2,152 | | | 0 | | |||||||||||||||||||||||||||||
SHMUEL BRILL
AND SUSANNA BRILL(15) |
$ | | $ | | $ | | | 3,043 | 3,043 | | | 0 | | |||||||||||||||||||||||||||||
CAMHZN
MASTER LDC(16) |
$ | | $ | | $ | | | 25,345 | 25,345 | | | 0 | | |||||||||||||||||||||||||||||
CAMOFI
MASTER LDC17) |
$ | | $ | | $ | | | 157,132 | 157,132 | | | 0 | | |||||||||||||||||||||||||||||
CEDARVIEW
OPPORTUNITIES MASTER FUND, LP(18) |
$ | 3,624,243 | $ | 1,352,624 | $ | 4,976,867 | 120,073 | | 120,073 | 0 | | 0 | | |||||||||||||||||||||||||||||
CITIGROUP
PENSION PLAN DALTON DISTRESSED CREDIT(19) |
$ | 846,000 | $ | 315,740 | $ | 1,161,740 | 28,028 | | 28,028 | 0 | | 0 | | |||||||||||||||||||||||||||||
CMI II
LLC(20) |
$ | | $ | | $ | | | 428,555 | 428,555 | | | 0 | | |||||||||||||||||||||||||||||
COMMERCE
COURT(21) |
$ | 88,125 | $ | 32,889 | $ | 121,015 | 2,919 | | 2,919 | | | | | |||||||||||||||||||||||||||||
DALTON
DISTRESSED CREDIT (MASTER) FUND LTD(22) |
$ | 317,250 | $ | 118,403 | $ | 435,653 | 10,511 | | 10,511 | 0 | | 0 | | |||||||||||||||||||||||||||||
DEL MAR
MASTER FUND, LTD(23) |
$ | | $ | | $ | | | 698,180 | 698,180 | | | 0 | | |||||||||||||||||||||||||||||
DG VALUE
PARTNERS LP(24) |
$ | 722,625 | $ | 269,695 | $ | 992,320 | 23,941 | | 23,941 | 0 | | 0 | | |||||||||||||||||||||||||||||
EPIC
DISTRESSED DEBT OPPORTUNITY MASTER FUND, LTD(25) |
$ | | $ | | $ | | | 354,839 | 354,839 | | | 0 | | |||||||||||||||||||||||||||||
FLORESCUE
FAMILY CORPORATION(26) |
$ | 1,869,439 | $ | 697,704 | $ | 2,567,143 | 61,936 | 1,086,366 | 1,148,302 | 0 | | 0 | | |||||||||||||||||||||||||||||
RUSSELL
FRYE(27) |
$ | | $ | | $ | | | 133,949 | 133,949 | | | 0 | | |||||||||||||||||||||||||||||
HAYMAN
CAPITAL MASTER FUND, LP(28) |
$ | 12,954,375 | $ | 4,834,773 | $ | 17,789,148 | 429,185 | | 429,185 | 0 | | 0 | | |||||||||||||||||||||||||||||
INTERACTIVE
BRAND DEVELOPMENT INC(29) |
$ | | $ | | $ | | | 32,965 | 32,965 | | | 0 | | |||||||||||||||||||||||||||||
INVESTIN PRO
FMBA DALTON DISTRESSED DEBT(30) |
$ | 1,374,750 | $ | 513,078 | $ | 1,887,828 | 45,546 | | 45,546 | 0 | | 0 | | |||||||||||||||||||||||||||||
MAPSTEAD
TRUST (31) |
$ | 22,247,057 | $ | 8,302,945 | $ | 30,550,002 | 737,057 | 512,992 | 1,250,049 | 0 | | 0 | | |||||||||||||||||||||||||||||
PAW
ASSOCIATES LLC(32) |
$ | | $ | | $ | | | 11,454 | 11,454 | | | 0 | | |||||||||||||||||||||||||||||
PERMAL
CAPITAL STRUCTURE OPPORTUNITIES LTD(33) |
$ | 1,586,250 | $ | 592,013 | $ | 2,178,263 | 52,553 | | 52,553 | 0 | | 0 | | |||||||||||||||||||||||||||||
ANDREW
RECHTSCHAFFEN(34) |
$ | | $ | | $ | | | 30,414 | 30,414 | | | 0 | |
Name of Selling Securityholder |
Aggregate Principal Amount of Notes Owned and Outstanding* |
Aggregate Principal Amount of Notes Paid-In Kind That May Be Paid(1)* |
Aggregate Principal Amount of Notes That May be Sold* |
Number of Shares of Common Stock Owned Upon Full Conversion of Notes |
Number of Shares Of Common Stock Owned Outright |
Aggregate Number of Shares of Common Stock That May Be Sold Pursuant to This Prospectus(2) |
Principal Amount of Notes Beneficially Owned After This Offering |
Percentage of Principal Amount of Notes Beneficially Owned After This Offering(3) |
Number of Shares of Common Stock Owned After This Offering(4) |
Percentage of Shares of Common Stock Owned After This Offering(4),(5) | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ROCKVIEW
SHORT ALPHA FUND LTD(35) |
$ | | $ | | $ | | | 82,090 | 82,090 | | | 0 | | |||||||||||||||||||||||||||||
ROCKVIEW
TRADING LTD(36) |
$ | 1,057,500 | $ | 394,675 | $ | 1,452,175 | 35,036 | 556,584 | 591,620 | 0 | | 0 | | |||||||||||||||||||||||||||||
SG AURORA
MASTER FUND LP(37) |
$ | 528,750 | $ | 197,338 | $ | 726,088 | 17,518 | | 17,518 | 0 | | 0 | | |||||||||||||||||||||||||||||
SPECIAL
SITUATIONS, LLC(38) |
$ | 246,750 | $ | 92,091 | $ | 338,841 | 8,175 | 22,075 | 30,250 | 0 | | 0 | | |||||||||||||||||||||||||||||
SPECIAL
SITUATIONS X, LLC(39) |
$ | 528,750 | $ | 197,338 | $ | 726,088 | 17,518 | | 17,518 | 0 | | 0 | | |||||||||||||||||||||||||||||
STATON
FAMILY PERPETUAL TRUST(40) |
$ | | $ | | $ | | | 1,688,970 | 1,688,970 | | | 0 | | |||||||||||||||||||||||||||||
STATON MEDIA
LLC(41) |
$ | | $ | | $ | | | 149,995 | 149,995 | | | 0 | | |||||||||||||||||||||||||||||
STATON
FAMILY INVESTMENTS LTD(42) |
$ | | $ | | $ | | | 3,432,893 | 3,432,893 | | | 0 | | |||||||||||||||||||||||||||||
STONEHILL
INSTITUTIONAL PARTNERS LP(43) |
$ | 5,917,274 | $ | 2,208,418 | $ | 8,125,692 | 196,042 | 353,105 | 549,147 | 0 | | 0 | | |||||||||||||||||||||||||||||
STONEHILL
MASTER FUND LTD(44) |
$ | 11,596,359 | $ | 4,327,940 | $ | 15,924,300 | 384,193 | 868,724 | 1,252,917 | 0 | | 0 | | |||||||||||||||||||||||||||||
STRATEGIC
MEDIA I LLC(45) |
$ | | $ | | $ | | | 1,274,165 | 1,274,165 | | | 0 | | |||||||||||||||||||||||||||||
VISIUM
BALANCED MASTER FUND LTD(46) |
$ | 2,013,480 | $ | 751,462 | $ | 2,764,942 | 66,708 | | 66,708 | 0 | | 0 | | |||||||||||||||||||||||||||||
VISIUM
CREDIT MASTER FUND LTD(47) |
$ | 3,274,020 | $ | 1,221,915 | $ | 4,495,935 | 108,470 | | 108,470 | 0 | | 0 | | |||||||||||||||||||||||||||||
VISIUM
EQUITY GLOBAL MASTER FUND LTD(48) |
$ | | $ | | $ | | | 81,812 | 81,812 | | | 0 | | |||||||||||||||||||||||||||||
THE WEISMANN
FOUNDATION(49) |
$ | | $ | | $ | | | 15,634 | 15,634 | | | 0 | | |||||||||||||||||||||||||||||
THE 2007
AIDAN STIRLING WEISMANN TRUST(50) |
$ | | $ | | $ | | | 407 | 407 | | | 0 | | |||||||||||||||||||||||||||||
DIETRICH
WEISMANN CHARITABLE LEAD ANNUITY TRUST (LUCY MANAGED) (51) |
$ | | $ | | $ | | | 1,219 | 1,219 | | | 0 | | |||||||||||||||||||||||||||||
DIETRICH
WEISMANN CHARITABLE LEAD ANNUITY TRUST (PAUL MANAGED)(52) |
$ | | $ | | $ | | | 1,219 | 1,219 | | | 0 | | |||||||||||||||||||||||||||||
DIETRICH
WEISMANN REVOCABLE TRUST(53) |
$ | | $ | | $ | | | 37,454 | 37,454 | | | 0 | | |||||||||||||||||||||||||||||
THE 2005
OWEN AYRTON WEISMANN TRUST(54) |
$ | | $ | | $ | | | 507 | 507 | | | 0 | | |||||||||||||||||||||||||||||
PAUL A.
WEISMANN(55) |
$ | | $ | | $ | | | 292 | 292 | | | 0 | | |||||||||||||||||||||||||||||
PAUL A.
WEISMANN DESCENDANTS TRUST(56) |
$ | | $ | | $ | | | 2,866 | 2,866 | | | 0 | |
Name of Selling Securityholder |
Aggregate Principal Amount of Notes Owned and Outstanding* |
Aggregate Principal Amount of Notes Paid-In Kind That May Be Paid(1)* |
Aggregate Principal Amount of Notes That May be Sold* |
Number of Shares of Common Stock Owned Upon Full Conversion of Notes |
Number of Shares Of Common Stock Owned Outright |
Aggregate Number of Shares of Common Stock That May Be Sold Pursuant to This Prospectus(2) |
Principal Amount of Notes Beneficially Owned After This Offering |
Percentage of Principal Amount of Notes Beneficially Owned After This Offering(3) |
Number of Shares of Common Stock Owned After This Offering(4) |
Percentage of Shares of Common Stock Owned After This Offering(4),(5) | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
PHILLIPA V.
WEISMANN(57) |
$ | | $ | | $ | | | 2,691 | 2,691 | | | 0 | | |||||||||||||||||||||||||||||
LUCY C.
VELTRI(58) |
$ | | $ | | $ | | | 292 | 292 | | | 0 | | |||||||||||||||||||||||||||||
ZELL CREDIT
OPPORTUNITIES MASTER FUND LP(59) |
$ | 10,575,000 | $ | 3,946,753 | $ | 14,521,753 | 350,355 | | 350,355 | 0 | | 0 | | |||||||||||||||||||||||||||||
2B LLC(60) |
$ | 1,163,250 | $ | 434,143 | $ | 1,597,393 | 38,539 | | 38,539 | 0 | | 0 | | |||||||||||||||||||||||||||||
TOTAL
|
$ | 250,849,125 | $ | 93,620,767 | $ | 344,469,892 | 8,310,763 | 22,756,706 | 31,007,466 | 0 | | 60,003 | |
* |
Amounts have been rounded to the nearest dollar. |
|
Less than 1%. |
(1) |
Equals the maximum aggregate principal amount of Non-Cash Pay Notes that may be paid-in-kind in respect of interest payments. |
(2) |
Includes the aggregate number of shares of common stock held upon full conversion of the Non-Cash Pay Notes and shares held outright that may be sold pursuant to this Prospectus. |
(3) |
Based on the aggregate principal amount of Non-Cash Pay Notes outstanding of $250,849,125 and $93,620,767 of Non-Cash Pay Notes that may be paid-in-kind in respect of interest payments. |
(4) |
The shares and percentages reflected in these columns reflect the aggregate number of shares of common stock held upon full conversion of the Non-Cash Pay Notes and shares held outright by certain selling securityholders after public resale of all shares that may be sold pursuant to this Prospectus. |
(5) |
Based on 31,219,644 shares of our common stock outstanding as of December 14, 2011. |
(6) |
Shares of common stock beneficially owned consist of 1,753,028 shares of common stock and 238,675 shares of common stock held at Cede & Co. through a brokerage account with J.P. Morgan Bank. Income Fund GP Limited (IFGPL) is the general partner of Absolute Income Fund, L.P. Ben Christian Rispoli is the sole director of IFGPL. Greymoor International Limited is the sole stockholder of IFGPL and is a wholly-owned subsidiary of Neville Holdings Group Limited. Olivier Claude Michel Bassou and Olivier Pierre Adam are the directors of Greymoor International Limited and Neville Holdings Group Limited. Mr. Rispoli, Mr. Bassou and Mr. Adam share voting and investment power over the shares held by Absolute Income Fund, L.P. The address of Absolute Income Fund, L.P. is c/o Lainston International Management Ltd., Suite 4-213-4 Governors Square, PO Box 31298, Grand Cayman, KY1-1206, Cayman Islands. |
(7) |
Advanced Series Trust AST Academic Strategies Asset Allocation Portfolio (AST) is an affiliate of Pruco Securities, LLC, Prudential Investment Management Services LLC and Prudential Annuities Distributors, Inc., which are broker-dealers registered pursuant to Section 15 of the Securities and Exchange Act of 1934. AST purchased the notes in the ordinary course of business and at the time of the purchase of the notes, it had no agreements or understandings with any person to distribute the securities. CNH Partners, LLC is the sub-advisor of AST. CNH Partners, LLC is controlled indirectly by Mr. Todd Pulvino and Mr. Mark Mitchell. Accordingly, Mr. Pulvino and Mr. Mitchell share voting and investment power over the notes owned by AST. AQR Capital Management, LLC acts as the investment manager to the Diversified Arbitrage investment arm of AST. The address of AST is c/o AQR Capital Management, LLC, Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830. |
(8) |
To the best of our knowledge, Andrew Conru holds voting and investment power over the notes and shares held by the Andrew B. Conru Trust. The address of the Andrew B. Conru Trust Agreement is c/o Bose Mckinney & Evans, LLP, 111 Monument Circle, Suite 2700, Indianapolis, IN 46204. |
(9) |
CNH Partners, LLC is the sub-advisor of AQR Diversified Arbitrage Fund. CNH Partners, LLC is controlled indirectly by Mr. Todd Pulvino and Mr. Mark Mitchell. Accordingly, Mr. Pulvino and Mr. Mitchell share voting and investment power over the notes owned by AQR Diversified Arbitrage Fund. The address of AQR Diversified Arbitrage Fund is c/o AQR Capital Management, LLC, Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830. |
(10) |
The general partner of AQR Opportunistic Premium Offshore Fund, L.P. is AQR Capital Management III, LLC. AQR Capital Management, LLC is the sole member of AQR Capital Management III, LLC. AQR Capital Management Holdings, LLC is the sole member of AQR Capital Management, LLC. Mr. Clifford S. Asness is a greater than 25% shareholder of AQR Capital Management Holdings, LLC. CNH Partners, LLC is the sub-advisor of AQR Opportunistic Premium Offshore Fund, L.P. CNH Partners, LLC is controlled indirectly by Mr. Todd Pulvino and Mr. Mark Mitchell. Accordingly, Mr. Pulvino and Mr. Mitchell share voting and investment power over the notes owned by AQR Opportunistic Premium Offshore Fund, L.P. The address of AQR Opportunistic Premium Offshore Fund, L.P. is c/o AQR Capital Management, LLC, Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830. |
(11) |
Mr. Marc H. Bell is the trustee and has sole voting and investment power over the shares owned by the trust. The shares are held in trust for the benefit of Mr. Bells children. The address of the Bell Family 2003 Charitable Lead Annuity Trust is 6800 Broken Sound Parkway, Boca Raton, FL 33487. |
(12) |
Marc H. Bell is our Chief Executive Officer, President and a Director. The address for Mr. Bell is 6800 Broken Sound Parkway, Boca Raton, FL 33487. The shares reflected in the column Number of Shares of Common Stock Owned After This Offering are shares of common stock owned outright by Mr. Bell and are not being offered for public resale by Mr. Bell under this Prospectus. |
(13) |
Bessemer Trust Company, N.A. and Mr. Matthew Smyth are the trustees of the Dietrich Weismann Settlement Trust A and share voting and dispositive power over the shares held by the Dietrich Weismann Settlement Trust A. The address of the Dietrich Weismann Settlement Trust A is c/o Bessemer Trust Co., 100 Woodbridge Center Drive, Woodbridge, NJ 07095, Attn: Custody Asset Transfer Unit. |
(14) |
Bessemer Trust Company, N.A. and Mr. Roger Kimball are the trustees of the Dietrich Weismann Settlement Trust B and share voting and dispositive power over the shares held by the Dietrich Weismann Settlement Trust B. The address of the Dietrich Weismann Settlement Trust B is c/o Bessemer Trust Co., 100 Woodbridge Center Drive, Woodbridge, NJ 07095, Attn: Custody Asset Transfer Unit. |
(15) |
Mr. and Mrs. Brill share voting and investment power over their shares of common stock. The address for Shmuel & Susana Brill is 1 Landmark Square, FL4 Stamford, CT 06901. |
(16) |
Centrecourt Asset Management LLC is the investment advisor to CAMHZN Master LDC. Mr. Richard Smithline is a managing member and a director of Centrecourt Asset Management LLC and therefore has sole voting and investment power over the shares of common stock owned by Camhzn Master LDC. The address of CAMHZN Master LDC is c/o Centrecourt Asset Management LLC, 350 Madison Avenue, 8th Floor, New York, NY 10017. |
(17) |
Centrecourt Asset Management LLC is the investment advisor to CAMOFI Master LDC. Mr. Richard Smithline is the managing member and a director of Centrecourt Asset Management LLC and therefore has sole voting and investment power over the shares of common stock owned by Camofi Master LDC. The address of CAMOFI Master LDC is c/o Centrecourt Asset Management LLC, 350 Madison Avenue, 8th Floor, New York, NY 10017. |
(18) |
The General Partner of Cedarview Opportunities Master Fund, LP is Cedarview GP, LLC. Mr. Burton Weinstein is the holder of the membership interests in Cedarview GP, LLC and therefore has sole voting and investment power over the notes owned by Cedarview Opportunities Master Fund, LP. The address of Cedarview Opportunities Master Fund, LP is One Penn Plaza, 45th Floor, New York, NY 10119. |
(19) |
Mr. Arthur Hebert is the senior managing director and chief financial officer of Dalton Investments LLC, which is the investment advisor to Citigroup Pension Plan Dalton Distressed Credit. Mr. Herbert, Mr. Steve Persky, Ms. Michelle Lynd and Mr. Todd Sherer all share voting and investment power over the notes held by Citigroup Pension Plan Dalton Distressed Credit. The address of Citigroup Pension Plan Dalton Distressed Credit is c/o Dalton Investments LLC, 1601 Cloverfield Boulevard, Suite 5050N Santa Monica, CA 90404. |
(20) |
CMI II, LLC is a wholly-owned subsidiary of Castlerigg Master Investments Ltd. Sandell Asset Management Corp. is the investment manager of Castlerigg Investments Ltd. Thomas Sandell is the controlling person of Sandell Asset Management Corp. and therefore has sole voting and investment power over the shares of common stock owned by CMI II LLC. The address of CMI II LLC is c/o Sandell Asset Management Corp., 40 West 57th Street, 26th Floor, New York, New York 10019. |
(21) |
DG Capital Management, LLC is the investment manager for Commerce Court. Dov Gertzulin is the managing member of DG Capital Management, LLC and has sole voting and investment power over the notes held by Commerce Court. The address of Commerce Court is c/o DG Capital Management, LLC, 460 Park Avenue, 13th Floor, New York, NY 10022. |
(22) |
Mr. Arthur Hebert is the senior managing director and chief financial officer of Dalton Investments LLC, which is the investment advisor to Dalton Distressed Credit (Master) Fund Ltd. Mr. Herbert, Mr. Steve Persky, Ms. Michelle Lynd and Mr. Todd Sherer all share voting and investment power over the notes held by Dalton Distressed Credit (Master) Fund Ltd. The address of Dalton Distressed Credit (Master) Fund Ltd is c/o Dalton Investments LLC, 1601 Cloverfield Boulevard, Suite 5050N Santa Monica, CA 90404. |
(23) |
Mr. Marc Simon is the Director of Del Mar Master Fund, Ltd. Del Mar Asset Management, LP is the advisor to Del Mar Master Fund, Ltd. The general partner of Del Mar Asset Management, LP is Del Mar Management, LLC. David Freelove is the president, chief executive officer and a managing member of Del Mar Management, LLC and has sole voting and investment power over the shares of common stock owned by Del Mar Master Fund, Ltd. The address of Del Mar Master Fund, Ltd. is c/o Walkers Financial Svcs, 83 Mary St., Georgetown, Grand Cayman KY1-9005 Cayman Islands. |
(24) |
DG Capital Management, LLC is the investment manager to DG Value Partners, LP. Mr. Dov Gertzulin is the managing member of DG Capital Management, LLC and has sole voting and investment power over the notes held by DG Value Partners, LP. The address of DG Value Partners, LP is c/o DG Capital Management, LLC, 460 Park Avenue, 13th Floor, New York, NY 10022. |
(25) |
Citigroup Alternative Investments LLC, a registered investment advisor, is the investment manager to Epic Distressed Debt Opportunity Master Fund Ltd. Herbert E. Seit and James J. Duplessie are the controlling persons of the investment manager and therefore have shared voting and investment power over the shares of common stock owned by Epic Distressed Debt Opportunity Master Fund, Ltd. Citigroup Alternative Investments LLC is an affiliate of Citigroup, which is a broker-dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934. Epic Distressed Debt Opportunity Master Fund purchased the shares of common stock in the ordinary course of business and at the time of the purchase of the shares of common stock, it had no agreements or understandings with any person to distribute the securities. The address of Epic Distressed Debt Opportunity Master Fund, Ltd. is c/o Citi Alternative Investments, 399 Park Avenue, 7th Floor, New York, New York 10022. |
(26) |
Mr. Barry Florescue is President of Florescue Family Corporation and has voting and investment power over the notes and shares of common stock owned by Florescue Family Corporation. The address of Florescue Family Corporation is 50 E. Sample Rd, Suite 400, Pompano Beach, Florida 30064. |
(27) |
Mr. Russell Frye has voting and investment power over his own shares of common stock. The address for Mr. Frye is 4045 NW 58th Place, Boca Raton, FL 33496. |
(28) |
Hayman Capital Management, L.P., the controlling entity of Hayman Capital Master Fund L.P., and Hayman Offshore Management, Inc. (Cayman Islands) are the General Partners of Hayman Capital Master Fund L.P. Hayman Investments, LLC is the General Partner of Hayman Capital Management, L.P. Mr. J. Kyle Bass is the owner of Hayman Investments, LLC, Hayman Capital Management, L.P. and Hayman Offshore Management, Inc., individually and through trust vehicles and therefore has sole voting and investment power over the notes owned by Hayman Capital Master Fund, L.P. The address of Hayman Capital Master Fund L.P. is 2101 Cedar Springs Road, Dallas, TX 75201. |
(29) |
These shares of common stock were issued in November 2011 upon the exchange of the 32,965 shares of Series B common stock previously owned for 32,965 shares of common stock. Mr. Steve Markley is the President, Chief Executive Officer and sole director of Interactive Brand Development, Inc., and has sole voting and investment power over its shares. The address of Interactive Brand Development, Inc. is 934 N University Drive, Coral Springs, FL 33071. |
(30) |
Mr. Arthur Hebert is the senior managing director and chief financial officer of Dalton Investments LLC, which is the investment advisor to Investin Pro FMBA Dalton Distressed Debt. Mr. Herbert, Mr. Steve Persky, Ms. Michelle Lynd and Mr. Todd Sherer all share voting and investment power over the notes held by Investin Pro FMBA Dalton Distressed Debt. The address of Investin Pro FMBA Dalton Distressed Debt is c/o Dalton Investments LLC, 1601 Cloverfield Boulevard, Suite 5050N Santa Monica, CA 90404. |
(31) |
Mr. Lars Mapstead and Mrs. Marin Mapstead are trustees of the Mapstead Trust, created on April 16, 2002 and hold shared voting and investment power over notes and shares of common stock owned by the Mapstead Trust. The address of Mapstead Trust is c/o Bose Mckinney & Evans LLP, 111 Monument Circle, Suite 2700, Indianapolis, IN 46204. |
(32) |
Mr. Paul Weismann is the Manager of PAW Associates, LLC and therefore has sole voting and investment power over the shares of common stock owned by PAW Associates LLC. The address of PAW Associates, LLC is 1 Landmark Square, FL4, Stamford, CT 06901. |
(33) |
Sandler Capital Management is the investment manager for Permal Capital Structure Opportunities, Ltd. (PCSO) and SERF Corp. is a general partner of Sandler Capital Management. The controlling entity of PCSO is Citco Bank and Trust Company, Ltd. Mr. Doug Schimmel holds sole voting and investment power over the notes held by Permal Capital Structure Opportunities, Ltd. The address of PCSO is 711 5th Ave., 15th Floor, New York, NY 10022. |
(34) |
Mr. Andrew Rechtschaffen has voting and investment power over his own shares of common stock. The address for Mr. Rechtschaffen is JP Morgan Chase FAO Andrew Rechtschaffen, 500 Stanton Christiana Road, Newark, DE 19713. |
(35) |
Mr. Kevin Schweitzer is the managing member of Zabak Capital, LLC and has sole voting and investment power over the shares of common stock owned by Rockview Short Alpha Fund, Ltd., Zabak Capital LLC is the managing member of Rockview Management, LLC. Rockview Management, LLC is the investment manager to Rockview Short Alpha Fund, Ltd. The address of Rockview Short Alpha Fund, Ltd. is MetroCenter, One Station Place, 7th Floor, Stamford, CT 06902. |
(36) |
Mr. Kevin Schweitzer is the managing member of Zabak Capital, LLC and holds sole voting and investment power over the notes and shares of common stock held by RockView Trading, Ltd. Zabak Capital, LLC is the managing member of RockView Management LLC. Rockview Management, LLC is the investment manager to RockView Trading, Ltd. The address of Rockview Trading, Ltd. is MetroCenter, One Station Place, 7th Floor, Stamford, CT 06902. |
(37) |
Sheldon Goldman has voting and dispositive power over the notes owned by SG Aurora Master Fund L.P. The address of SG Aurora Master Fund L.P. is 825 Third Ave., 34th Floor, New York, NY 10022. |
(38) |
DG Capital Management, LLC is the investment manager for Special Situations, LLC. Dov Gertzulin is the managing member of DG Capital Management, LLC and has sole voting and investment power over the notes held by Special Situations, LLC. The address of Special Situations, LLC is c/o DG Capital Management, LLC, 460 Park Avenue, 13th Floor, New York, NY 10022. |
(39) |
DG Capital Management, LLC is the investment manager for Special Situations X, LLC. Dov Gertzulin is the managing member of DG Capital Management, LLC and has sole voting and investment power over the notes held by Special Situations X, LLC. The address of Special Situations X, LLC is c/o DG Capital Management, LLC, 460 Park Avenue, 13th Floor, New York, NY 10022. |
(40) |
Mr. Staton is the trustee of Staton Family Perpetual Trust and has sole voting and investment power over the shares of common stock owned by the Staton Family Perpetual Trust, which are held in trust for the benefit of his minor children. The address of Staton Family Perpetual Trust is 6800 Broken Sound Parkway, Boca Raton, FL 33487. |
(41) |
Mr. Staton is a member and the manager of Staton Media LLC and therefore has sole voting and investment power over the shares of common stock owned by Staton Media LLC. The address of Staton Media LLC is 6800 Broken Sound Parkway, Boca Raton, FL 33487. |
(42) |
Mr. Staton is a member of Staton Family Investments, Ltd. and has sole voting and investment power over the shares of common stock owned by Staton Family Investment, Ltd. The address of Staton Family Investments, Ltd. is 6800 Broken Sound Parkway, Boca Raton, FL 33487. |
(43) |
Stonehill Capital Management LLC, a Delaware limited liability company (SCM), is the investment advisor of Stonehill Institutional Partners, L.P. (Stonehill Institutional) and Stonehill General Partner, LLC, (Stonehill GP) is the General Partner of Stonehill Institutional. Mr. John Motulsky, Mr. Christopher Wilson, Mr. Wayne Teetsel, Mr. Thomas Varkey, Mr. Jonathan Sacks, Mr. Peter Sisitsky and Mr. Michael Thoyer (collectively, the Members) are the managing members of SCM and Stonehill GP and share voting and investment power over the notes and shares of common stock owned by Stonehill Institutional. The address of Stonehill Institutional is c/o Stonehill Capital Management LLC, 885 Third Avenue, 30th Floor, New York, NY 10022. |
(44) |
Stonehill Capital Management LLC, a Delaware limited liability company (SCM) is the investment advisor of Stonehill Master Fund Ltd (Stonehill Master). Mr. John Motulsky, Mr. Christopher Wilson, Mr. Wayne Teetsel, Mr. Thomas Varkey, Mr. Jonathan Sacks, Mr. Peter Sisitsky and Mr. Michael Thoyer (collectively, the Members) are the managing members of SCM and share voting and investment power over the notes and shares of common stock owned by Stonehill Master. The address of Stonehill Master is c/o Stonehill Capital Management LLC, 885 Third Avenue, 30th Floor, New York, NY 10022. |
(45) |
The following shares are owned by the members of Strategic Media I LLC: 318,541 shares held by the Bell Family 2000 Trust; 318,541 shares held by Staton Family Investments, Ltd.; 79,635 shares held by James LaChance, a member of the Board of Directors of FriendFinder Networks, Inc., and his wife, Hilary LaChance; 238,906 shares held by Equity Acquisition LLC; 159,271 shares held by PJJZRL, LLC; and 159,271 shares held by the Millenium Gift Trust. The shares held by the Bell Family 2000 Trust are held in trust for the benefit of Mr. Bells children. Mr. Staton has sole voting and investment power over the shares of common stock owned by Strategic Media I LLC in his capacity as a member of Staton Family Investments, Ltd. The address of Strategic Media I LLC is 6800 Broken Sound Parkway, Boca Raton, FL 33487. |
(46) |
Visium Asset Management, LP has discretionary authority over these notes. The General Partner of Visium Asset Management, LP is JG Asset, LLC. Mr. Jacob Gottlieb and Mr. Mark Gottlieb are the holders of membership interests in JG Asset, LLC and therefore share voting and investment power over the notes owned by Visium Balanced Master Fund, Ltd. The address of Visium Balanced Master Fund, Ltd. is c/o Visium Asset Management, LP, 950 Third Avenue, 29th Floor, New York, NY 10022. |
(47) |
Visium Asset Management, LP has discretionary authority over these notes. The General Partner of Visium Asset Management, LP is JG Asset, LLC. Mr. Jacob Gottlieb and Mr. Mark Gottlieb are the holders of membership interests in JG Asset, LLC and therefore share voting and investment power over the notes owned by Visium Credit Master Fund, Ltd. The address for Visium Credit Master Fund, Ltd. is c/o Visium Asset Management LP, 950 Third Avenue, 29th Floor, New York, NY 10022. |
(48) |
Visium Asset Management, LP has discretionary trading authority over these shares of common stock. The General Partner of Visium Asset Management, LP is JG Asset, LLC. Mr. Jacob Gottlieb and Mr. Mark Gottlieb are the members of JG Asset, LLC and therefore share voting and investment power over the shares of common stock owned by Visium Equity Global Master Fund, Ltd. The address of Visium Equity Global Master Fund, Ltd. is c/o Visium Asset Management, LP, 950 Third Avenue, 29th Floor, New York, NY 10022. |
(49) |
Mr. Paul Weismann is the trustee of the Weismann Foundation and therefore has sole voting and investment power over the shares of common stock owned by the Weismann Foundation. The address of the Weismann Foundation is 1 Landmark Square, FL4, Stamford, CT 06901. |
(50) |
Mr. Paul Weismann is the trustee for the 2007 Aidan Stirling Weismann Trust and therefore has sole voting and investment power over the shares of common stock owned by the 2007 Aidan Stirling Weismann Trust. The address of the 2007 Aidan Stirling Weismann Trust is 1 Landmark Square, FL4, Stamford, CT 06901. |
(51) |
Ms. Lucy Veltri is the manager of the Dietrich Weismann Charitable Lead Annuity Trust (Lucy Managed) and has sole voting and investment power over the shares of common stock held by the Dietrich Weismann Charitable Lead Annuity Trust (Lucy Managed). The address of the Dietrich Weismann Charitable Lead Annuity Trust (Lucy Managed) is c/o Philippa V. Weismann, 115 Central Park West, #8FE, New York, NY 10023. |
(52) |
Mr. Paul A. Weismann is the manager of the Dietrich Weismann Charitable Lead Annuity Trust (Paul Managed) and has sole voting and investment power over the shares of common stock held by the Dietrich Weismann Charitable Lead Annuity Trust (Paul Managed). The address of the Dietrich Weismann Charitable Lead Annuity Trust (Paul Managed) is c/o Philippa V. Weismann, 115 Central Park West, #8FE, New York, NY 10023. |
(53) |
Mr. Lawrence Flynn is the trustee of the Dietrich Weismann Revocable Trust and therefore has sole voting and investment power over the shares of common stock owned by the Dietrich Weismann Revocable Trust. The address of the Dietrich Weismann Revocable Trust is 645 Madison Avenue, Floor 14, New York, NY 10022. |
(54) |
Mr. Paul Weismann is the trustee for the 2005 Owen Ayrton Weismann Trust and therefore has sole voting and investment power over the shares of common stock owned by the 2005 Owen Ayrton Weismann Trust. The address for the 2005 Owen Ayrton Weismann Trust is 1 Landmark Square, FL4, Stamford, CT 06901. |
(55) |
Mr. Paul A. Weismann has sole voting and investment power over his own shares of common stock. The address of Mr. Weismann is 3141 Salt Point Tpk, Clinton Corners, NY 12514. |
(56) |
Mr. Paul Weismann is the trustee for the Paul A. Weismann Descendants Trust and therefore has sole voting and investment power over the shares of common stock owned by the Paul A. Weismann Desendants Trust. The address for the Paul A. Weismann Descendants Trust is 1 Landmark Square, FL4, Stamford, CT 06901. |
(57) |
Ms. Philippa V. Weismann has sole voting and investment power over her own shares. The address of Ms. Weismann is 115 Central Park West, #8FE, New York, NY 10023. |
(58) |
Ms. Lucy C. Veltri has sole voting and investment power over her own shares. The address of Ms. Veltri is 5250 Advance Mills Road, Earlysville, VA 22963. |
(59) |
The general partner of Zell Credit Opportunities Master Fund, L.P. is Zell Credit Opportunities (GenPar), L.L.C. Voting and dispositive power over the notes is indirectly held by the trustee of trusts established for the benefit of the family of Samuel Zell, which trusts indirectly own and control Zell Credit Opportunities (GenPar), L.L.C. The trustee of each of the trusts is Chai Trust Company, LLC. The managing member of Chai Trust Company, LLC is EGI Investors, L.L.C. The members of the board of managers of Chai Trust Company, LLC are Matthew Zell, JoAnn Zell, Kellie Zell, Jon Wasserman, Donald Liebentritt and Leah Zell Wanger (collectively, the Board). The Board has voting and investment power over the notes owned by Zell Credit Opportunities Master Fund, L.P. The address of Zell Credit Opportunities Master Fund, L.P. is 2 North Riverside Plaza, Suite 600, Chicago, IL 60606. |
(60) |
Mr. Arthur Hebert is the senior managing director and chief financial officer of Dalton Investments LLC, which is the investment advisor to 2B LLC. Mr. Herbert, Mr. Steve Persky, Ms. Michelle Lynd and Mr. Todd Sherer all share voting and investment power over the notes held by 2B LLC. The address of 2B LLC is c/o Dalton Investments LLC, 1601 Cloverfield Boulevard, Suite 5050N Santa Monica, CA 90404. |
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Social Networking. Approximately 69% and 70% of our total net revenues for the nine months ended September 30, 2011 and the year ended December 31, 2010, respectively, were generated through our targeted social networking technology platform. Our social networking technology platform provides users who register or purchase subscriptions to one or more of our websites with the ability to communicate and to establish new connections with other users via our personal chat rooms, instant messaging and e-mail applications and to create, post and view content of interest. The content on our social networking sites is generated by our users for our users. Our social networking technology platform is extremely scalable and requires limited incremental cost to add additional users or to create new websites catering to additional unique audiences. As a result, we have been able to rapidly create and seamlessly maintain multiple websites tailored to specific categories or genres and designed to cater to targeted audiences with mutual interests. We believe that our ability to create and operate a diverse network of specific interest websites with unique, user-generated content in a cost-effective manner is a significant competitive differentiator that allows us to implement a subscription-fee based revenue model while many other popular social networking websites rely primarily upon free-access, advertising-based revenue models. |
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Live Interactive Video. Approximately 24% and 22% of our total net revenues for the nine months ended September 30, 2011 and the year ended December 31, 2010, respectively, were generated through our live interactive video technology platform. Our live interactive video technology platform is a live video broadcast platform that enables models to broadcast from independent studios throughout the world and interact with our users via instant messaging and video. Users are charged on a per-minute basis to interact with models. We pay a percentage of the revenues we generate to the studios that employ the models. We believe our live interactive video platform provides a unique offering including bi-directional and omni-directional video and interactive features that allow models to communicate with and attract users through a variety of mediums including blogs, newsletters and video. As a result, many studios and their models prefer our platform given our audience size and international reach, and our users prefer our platform as a result of the quality and variety of our models, the reliability of our network and the diversity of interactive features our platform provides. In addition, we believe the reliability of our live interactive video technology platform, which had approximately 99.1% uptime during 2010, is a key factor allowing us to maintain a large base of users. |
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Visitors. Visitors are users who visit our websites but do not necessarily register. Visitors come to our websites through a number of channels, including by being directed from affiliate websites, keyword searches through standard search engines and by word of mouth. We believe we achieve large numbers of unique visitors because of our focus on continuously enhancing the user experience and expanding the breadth of our services. We had more than 196 million unique worldwide visitors in the month of December 2010, representing a growth of more than 300% from our approximately 46.9 million unique worldwide visitors in January 2009, according to comScore. |
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Registrants. Registrants are visitors who complete a free registration form on one of our websites by giving basic identification information and submitting their e-mail address. For the nine months ended September 30, 2011, we averaged more than 6.4 million new registrations on our websites each month. For the year ended December 31, 2010, we averaged more than 6.4 million new registrations on our websites each month. Some of our registrants are also members, as described below. |
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Members. Members are registrants who log into one of our websites and make use of our free products and services. Members are able to complete their personal profile and access our searchable database of members but do not have the same full-access rights as subscribers. For the nine months ended September 30, 2011, we averaged more than 4.0 million new members on our websites each month. For the year ended December 31, 2010, we averaged more than 3.9 million new members on our websites each month. |
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Subscribers. Subscribers are members who purchase daily, three-day, weekly, monthly, quarterly, annual or lifetime subscriptions for one or more of our websites. Subscribers have full access to our websites and may access special features. For the nine months ended September 30, 2011, we had a monthly average of approximately 950 thousand paying subscribers and for the year ended December 31, 2010, we had a monthly average of approximately 1 million paying subscribers, respectively. |
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Paid Users. Paid users are members who purchase products or services on a pay-by-usage basis. For the nine months ended September 30, 2011, we averaged approximately 2.9 million purchased minutes by paid users each month. For the year ended December 31, 2010, we averaged approximately 3.0 million purchased minutes by paid users each month. |
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Average Revenue per Subscriber. We calculate average revenue per subscriber, or ARPU, by dividing net revenue for the period by the average number of subscribers in the period and by the number of months in the period. As such, our ARPU is a monthly calculation. For the nine months ended September 30, 2011, our average monthly revenue per subscriber was $20.22. For the year ended December 31, 2010, our average monthly revenue per subscriber was $20.49. For more information regarding our revenue, see the sections entitled Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Nine Months Ended September 30, 2011 as Compared to the Nine Months Ended |
September 30, 2010 and Year Ended December 31, 2010 as Compared to the Year Ended December 31, 2009. |
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Churn. Churn is calculated by dividing terminations of subscriptions during the period by the total number of subscribers at the beginning of that period. Our average monthly churn rate, which measures the rate of loss of subscribers, for the nine months ended September 30, 2011 was approximately 16.3%. Our average monthly churn rate for the year ended December 31, 2010 was 16.1% per month. |
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Cost Per Gross Addition. Cost per gross addition, or CPGA, is calculated by adding affiliate commission expense plus ad buy expenses and dividing by new subscribers during the measurement period. Our CPGA for the nine months ended September 30, 2011 was $42.76. Our CPGA for the year ended December 31, 2010 was $47.25. |
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Average Lifetime Net Revenue Per Subscriber. Average Lifetime Net Revenue Per Subscriber is calculated by multiplying the average lifetime (in months) of a subscriber by ARPU for the measurement period and then subtracting the CPGA for the measurement period. Our Average Lifetime Net Revenue Per Subscriber for the nine months ended September 30, 2011 was $81.06. Our Average Lifetime Net Revenue Per Subscriber for the year ended December 31, 2010 was $80.17. While we monitor many statistics in the overall management of our business, we believe that Average Lifetime Net Revenue Per Subscriber and the number of subscribers are particularly helpful metrics for gaining a meaningful understanding of our business as they provide an indication of total revenue and profit generated from our base of subscribers inclusive of affiliate commissions and advertising costs required to generate new subscriptions. |
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Proprietary and Scalable Technology Platform. |
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Paid Subscriber-Based Model. |
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Large and Diverse User Base. |
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Large and Difficult to Replicate Affiliate Network and Significant Marketing Spend. |
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Convert Visitors, Registrants and Members into Subscribers or Paid Users. |
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Create Additional Websites and Diversify Offerings. |
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Expand into and Monetize Current Foreign Markets. |
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Pursue Targeted Acquisitions. |
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Generate Online Advertising Revenue. |
English |
German |
Portuguese |
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Chinese |
Italian |
Spanish |
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Dutch |
Japanese |
Swedish |
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French |
Korean |
Tagalog |
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Blogs Blogs are a simple way to create a regularly updated home page where members can express themselves, learn about others, get more noticed and attract new friends. There are numerous blogs, grouped by subject. |
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Chatrooms Chatrooms are areas where members can discuss a specific topic or join rooms established by region. A private chatroom lets a member host a chat party by invitation only. |
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Contests Contests are a means of engaging our members by offering rewards for member-generated content. Examples include Best Holiday Greeting Card, Silly Photos with Clever Captions and many more. Prizes include upgraded memberships, free points, DVDs, T-shirts and mugs. |
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Cupid Reports Once a member has described an ideal match, the member is automatically notified by e-mail when a person matching that description becomes a member. |
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Friends Network A member can invite specified members into a personal group, keep track of them, share private photos and send personalized bulletins. |
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Get Local Websites list local events that are geographically targeted according to a members location. |
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Groups Groups are the place to find people who share interests and to develop new friendships. Members search for groups by topics, names or keywords and correspond, exchanging ideas. All groups have their own discussion boards and chatrooms, which facilitate communication and relationship building. Popular groups include Single again? Lets get together!, Dancing and Adventures, Romantic Getaways. |
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Instant Messaging Two different types of our instant messaging system are available: a standard service and a faster Flash system, which offers extra options such as live video and sound. |
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Loyalty Program Our point based loyalty program is designed to increase participation in our websites membership activities, such as participating in blogs and online magazines and creating video introductions as members are awarded points for participating in these activities. Points can be redeemed for other membership services such as upgraded memberships or more prominence of member profiles in online searches. |
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Newsletters Our most popular websites periodically send newsletters to members, including photos and brief descriptions of other members, advice on enhancing ones profile to attract more responses from other members and practical tips on dating and relationships. |
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Online Magazine At magazine pages, members can participate in many ways: read articles with expert advice on dating and relationships, enjoy fiction serials, submit their own articles, vote and comment on their reading, post original polls they have created, give advice and exchange opinions on various subjects, and view archives of articles. |
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Photo, Video and Voice Sharing Members can post their photographs and create webcam video introductions and voice introductions of themselves, which generates member-to-member contact. |
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Posting Profiles Members include personal details, such as city of residence and birthday, physical information, such as height and hair color, personal information, such as education, and occupation as well as other information. They describe themselves, specifying hobbies, the type of person they are |
seeking for a friend or for dating and can present up to 20 photographs. Members are encouraged to make their profiles as unique as possible by including personal details. |
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Search Members can conduct searches for compatible members according to a substantial list of criteria, including gender, geographical proximity, availability of photos and interests. Search criteria can be saved for repeated use. |
Website |
Description |
Registrants Since Inception (in thousands) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
AdultFriendFinder.com |
Our
most popular adult social networking and dating website. |
261,043 | ||||||||
Amigos.com
|
Spanish version of FriendFinder.com, translated into Spanish, Portuguese and English. |
58,137 | ||||||||
Cams.com
|
Adult
content live interactive video website where members pay per minute to chat with models who broadcast on the website via their
webcams. |
47,910 | ||||||||
AsiaFriendFinder.com |
Chinese version of FriendFinder.com, features traditional and simplified Chinese character sets as well as an English
interface. |
45,793 | ||||||||
FriendFinder.com
|
Website targeted toward singles looking for love, romance and marriage. Also includes many social networking aspects. |
17,666 | ||||||||
ALT.com
|
Alternative lifestyle personals website, catering to users with fetish, role-playing and other alternative sexuality
interests. |
16,343 | ||||||||
GetItOn.com
|
Adult
social networking and personals website where members from around the world log on to chat and view each other via their webcams. |
14,641 | ||||||||
OutPersonals.com
|
Adult-oriented dating website for gay men. |
8,080 | ||||||||
Penthouse.com
|
Premium content-based website with varying levels of access to Penthouse pictorials, articles, videos and live webcams shows with Penthouse
Pets. |
4,935 | ||||||||
GradFinder.com
|
Alumni directory where members can contact friends from elementary school through college. |
3,453 | ||||||||
IndianFriendFinder.com |
Indian version of FriendFinder.com, where users can narrow their searches by specific criteria, including language, religion, diet, and
caste. |
3,395 | ||||||||
BigChurch.com
|
Christian dating website with searchable bible passages and daily bible chapter e-mails. |
2,578 | ||||||||
SeniorFriendFinder.com |
Website targeted toward people over 40 years of age. |
2,420 | ||||||||
FrenchFriendFinder.com |
French version of FriendFinder.com, translated into French and English. |
2,069 | ||||||||
FilipinoFriendFinder.com |
Filipino version of FriendFinder.com, translated into Tagalog and English. |
2,049 | ||||||||
GermanFriendFinder.com |
German version of FriendFinder.com, translated into German and English. |
1,494 |
Website |
Description |
Registrants Since Inception (in thousands) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
NoStringsAttached.com |
Adult
Discreet Relationship Site |
1,481 | ||||||||
FastCupid.com
|
Social networking and personals website for dating, romance and friendship. |
1,343 | ||||||||
Bondage.com
|
Worlds largest BDSM community |
1,274 | ||||||||
GayFriendFinder.com |
Dating website for gay men. |
1,255 | ||||||||
ItalianFriendFinder.com |
Italian version of FriendFinder.com, translated into Italian and English. |
1,176 | ||||||||
KoreanFriendFinder.com |
Korean version of FriendFinder.com, translated into Korean and English. |
1,066 | ||||||||
Millionairemate.com |
Dating website targeted toward like-minded people who understand that intelligence, success and drive are key elements to
attraction. |
964 | ||||||||
stripshow.com
|
Low
cost cams site which offers group viewing |
818 | ||||||||
JewishFriendFinder.com |
Jewish dating website. |
640 | ||||||||
icams.com
|
Cams
site dedicated to amateur videos |
499 | ||||||||
AllPersonals.com
|
Allows users to join multiple top personal sites at one time |
301 | ||||||||
Slim.com
|
Health and wellness website. |
148 | ||||||||
HotBox.com
|
Premium content-based website that allows members to search a database of adult movies by favorite actor or by category of
movie. |
119 |
|
Notice. Users are provided meaningful notice about the information collected and used for internet related advertising. Users visiting our websites are provided notice via links to our privacy policies usually located on every one of our web pages and other methods of the types of individual information collected for advertising purposes, the technologies employed to collect such information, and how such information is used, including if applicable that other companies operate on the website and may collect such information. |
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Choice. Users are provided with a choice on how certain information is used. We provide for an opt-out mechanism for e-mail advertising and members of our social networking websites have access to a control panel that allows them to make choices on the type of data that is stored on our servers or made available to the public or other members using our websites. |
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Security. We strive to provide reasonable security for consumer data. Our security methods are based on the sensitivity of the data, the nature of the services provided, the types of risks related to such data and the reasonable protections available to us for practical implementation. We require our business service providers, such as credit card processors, to contractually maintain appropriate information security procedures based upon the sensitivity of the data and industry practices. We also ask registrants and members to provide their age and we review all member-generated content prior to its appearing on our websites. |
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Responsiveness. Users have a readily accessible means to contact us to express concerns and complaints regarding privacy matters and we have a team associated with handling such concerns and complaints. |
Most of our web pages have a link directly to a web based form for providing complaints to us for processing. |
number of users |
number of registrants completing registration |
|||||
number of paid subscriptions |
number of messages sent |
|||||
number of images uploaded |
number of customer service requests |
|||||
number of blogs created |
number of videos uploaded and viewed |
referring link/domain |
referring affiliate/ad buy/traffic source |
|||||
country |
language |
|||||
gender |
email domain |
number of requests served |
time spent per request |
|||||
central processing unit utilization |
memory utilization |
|||||
disc utilization |
|
a percentage of revenue generated and collected; |
|
per registrant or member; and |
|
per subscriber. |
|
Social Networking Websites Unlike most other social networking websites which are free, we have a paid subscription-based business model, which we believe is a significant competitive advantage. Our |
adult-themed community websites from which the majority of our revenue and earnings are derived, including AdultFriendFinder.com, do not directly compete with other general interest social networking websites because of the adult nature of the content. Our general audience websites, which contribute substantially less of our revenue and earnings, compete with other companies offering social networking websites such as MySpace, Inc., Facebook, Inc. and Friendster, Inc. Our general audience websites provide a wide range of social networking tools including blogs, chatrooms and messaging similar to our competitors. We also believe that a significant advantage to our websites is the ease with which members meet other members who were not known to them prior to joining our network. |
|
Internet Personals Websites We compete with certain elements of the internet personals business provided by companies including Match.com, L.L.C., Yahoo!Personals, a website owned and operated by Yahoo! Inc., Windows Live Profile, run by Microsoft Corporation, eHarmony, Inc., Lavalife Corp., Plentyoffish Media Inc. and Spark Networks Limited websites, including jdate.com, americansingles.com and relationships.com, as well as companies offering adult-oriented internet personals websites such as Cytek Ltd., the operator of SexSearch.com, and Fling Incorporated. |
|
Adult Audience Websites We compete with many adult-oriented and live interactive video websites, such as RedTube.com, Pornhub.com, YouPorn.com, Playboy.com and LiveJasmin.com. These websites are largely distinguished by the quality of the video and the quantity and caliber of the video content. We continue to seek to be at the forefront of video technology by seeking to offer our users the best available experience. As adult content receives wider mainstream acceptance, we expect our websites to benefit from an increased volume of member-generated content that will enhance our large library of adult content which is frequently updated and refreshed. |
|
Adult Entertainment Providers We compete with other publishers of branded mens lifestyle magazines, such as Maxim and Playboy, and we compete with other producers of adult pictorial and video content, such as Playboy Enterprises Inc., tmc Content Group AG and Total Media Agency. |
Location/Principal Use |
Square Feet |
Lease Expiration Date |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Sunnyvale,
California internet |
50,112 | October
31, 2015 |
||||||||
Los Angeles,
California entertainment |
35,400 | April
30, 2014 |
||||||||
New York, New
York entertainment |
16,431 | January
31, 2019 |
||||||||
Boca Raton,
Florida corporate administrative offices |
8,533 | December
31, 2015 |
||||||||
Las Vegas,
Nevada internet |
6,976 | December
31, 2012 |
Price Range of Common Stock |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
High |
Low |
||||||||||
2011 |
|||||||||||
Second
Quarter (commencing May, 11, 2011) |
$ | 10.01 | $ | 3.61 | |||||||
Third Quarter
(through September 30, 2011) |
$ | 5.22 | $ | 1.81 | |||||||
Fourth
Quarter (through December 1 5 , 2011) |
$ | 2.20 | $ | 0. 59 |
Plan Category |
Number of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted-average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(a) |
(b) |
(c) |
||||||||||||
Equity
compensation plans approved by security holders |
| | | |||||||||||
Equity
compensation plans not approved by security holders |
551,750 | (1) | $ | 10.00 | 1,186,122 | (1) | ||||||||
Total
|
551,750 | (1) | $ | 10.00 | 1,186,122 | (1) |
(1) |
The information set forth above pertains to our 2008 Stock Option Plan and our 2009 Restricted Stock Plan as of December 31, 2010. For a discussion of our 2008 Stock Option Plan please refer to the section entitled Executive Compensation Executive Compensation Components Long Term Equity Incentive Compensation or refer to Note 11, Stock Options of our consolidated financial statements included elsewhere in this prospectus. |
Consolidated Data |
|||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nine Months Ended September 30, |
Year Ended December 31, |
||||||||||||||||||||||||||||||
2011 |
2010 |
2010 |
2009 |
2008(1) |
2007(1) |
2006 |
|||||||||||||||||||||||||
(in thousands, except per share data) |
|||||||||||||||||||||||||||||||
Statements
of Operations and Per Share Data: |
|||||||||||||||||||||||||||||||
Net revenue
|
$ | 249,627 | $ | 257,490 | $ | 345,997 | $ | 327,692 | $ | 331,017 | $ | 48,073 | $ | 29,965 | |||||||||||||||||
Cost of
revenue |
79,806 | 84,790 | 110,490 | 91,697 | 96,514 | 23,330 | 15,927 | ||||||||||||||||||||||||
Gross profit
|
169,821 | 172,700 | 235,507 | 235,995 | 234,503 | 24,743 | 14,038 | ||||||||||||||||||||||||
Operating
expenses |
|||||||||||||||||||||||||||||||
Product
development |
12,080 | 9,304 | 12,834 | 13,500 | 14,553 | 1,002 | | ||||||||||||||||||||||||
Selling and
marketing |
22,679 | 30,589 | 37,258 | 42,902 | 59,281 | 7,595 | 1,430 | ||||||||||||||||||||||||
General and
administrative |
67,507 | 60,155 | 79,855 | 76,863 | 88,280 | 24,466 | 24,354 | ||||||||||||||||||||||||
Amortization
of acquired intangibles and software |
11,906 | 18,793 | 24,461 | 35,454 | 36,347 | 2,262 | | ||||||||||||||||||||||||
Depreciation
and other amortization |
3,268 | 3,556 | 4,704 | 4,881 | 4,502 | 2,829 | 3,322 | ||||||||||||||||||||||||
Impairment of
goodwill |
| | | | 9,571 | 925 | 22,824 | ||||||||||||||||||||||||
Impairment of
other intangible assets |
| | 4,660 | 4,000 | 14,860 | 5,131 | | ||||||||||||||||||||||||
Total
operating expenses |
117,440 | 122,397 | 163,772 | 177,600 | 227,394 | 44,210 | 51,930 | ||||||||||||||||||||||||
Income (loss)
from operations |
52,381 | 50,303 | 71,735 | 58,395 | 7,109 | (19,467 | ) | (37,892 | ) | ||||||||||||||||||||||
Interest
expense, net of interest income |
(65,097 | ) | (69,128 | ) | (88,508 | ) | (92,139 | ) | (80,510 | ) | (15,953 | ) | (7,918 | ) | |||||||||||||||||
Other finance
expenses |
| | (4,562 | ) | | | | | |||||||||||||||||||||||
Interest
related to VAT liability not charged to customers |
(1,410 | ) | (1,742 | ) | (2,293 | ) | (4,205 | ) | (8,429 | ) | (1,592 | ) | | ||||||||||||||||||
Net loss on
extinguishment and modification of debt |
(7,312 | ) | | (7,457 | ) | (7,240 | ) | | | (3,799 | ) | ||||||||||||||||||||
Foreign
exchange gain (loss) principally related to VAT liability not charged to customers |
(1,521 | ) | 436 | 610 | (5,530 | ) | 15,195 | 546 | | ||||||||||||||||||||||
Gain on
elimination of liability for United Kingdom VAT not charged to customers |
| | | 1,561 | | | | ||||||||||||||||||||||||
Gain on
settlement of VAT liability not charged to customers |
| | | 232 | 2,690 | | | ||||||||||||||||||||||||
Gain on
liability related to warrants |
391 | 427 | 38 | 2,744 | | | | ||||||||||||||||||||||||
Other
non-operating (expense) income, net |
(3,912 | ) | 5 | (13,202 | ) | (366 | ) | (197 | ) | 119 | (332 | ) | |||||||||||||||||||
Loss before
income tax benefit |
(26,480 | ) | (19,699 | ) | (43,639 | ) | (46,548 | ) | (64,142 | ) | (36,347 | ) | (49,941 | ) | |||||||||||||||||
Income tax
expense (benefit) |
(5,542 | ) | (219 | ) | 486 | 5,332 | 18,176 | 6,430 | |
Consolidated Data |
|||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nine Months Ended September 30, |
Year Ended December 31, |
||||||||||||||||||||||||||||||
2011 |
2010 |
2010 |
2009 |
2008(1) |
2007(1) |
2006 | |||||||||||||||||||||||||
(in thousands, except per share data) |
|||||||||||||||||||||||||||||||
Net loss
|
$ | (20,938 | ) | $ | (19,480 | ) | $ | (43,153 | ) | $ | (41,216 | ) | $ | (45,966 | ) | $ | (29,917 | ) | $ | (49,941 | ) | ||||||||||
Non-cash
dividends on convertible preferred stock |
| | | | | (4,396 | ) | | |||||||||||||||||||||||
Net loss
attributable to common stock |
$ | (20,938 | ) | $ | (19,480 | ) | $ | (43,153 | ) | $ | (41,216 | ) | $ | (45,966 | ) | $ | (34,313 | ) | $ | (49,941 | ) | ||||||||||
Net loss per
common share basic and diluted(2) |
$ | (1.02 | ) | $ | (1.42 | ) | $ | (3.14 | ) | $ | (3.00 | ) | $ | (3.35 | ) | $ | (5.19 | ) | $ | (8.99 | ) | ||||||||||
Weighted
average common shares outstanding basic and diluted(2) |
20,505 | 13,735 | 13,735 | 13,735 | 13,735 | 6,610 | 5,554 | ||||||||||||||||||||||||
Pro forma net
loss per common share basic and diluted(3) |
$ | (1.37 | ) | ||||||||||||||||||||||||||||
Pro forma
weighted average common shares outstanding basic and diluted(3) |
27,703 |
Consolidated Data |
|||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nine Months Ended September 30, |
December 31, |
||||||||||||||||||||||||||||||
2011 |
2010 |
2010 |
2009 |
2008(2) |
2007(2) |
2006 |
|||||||||||||||||||||||||
(in thousands) |
|||||||||||||||||||||||||||||||
Consolidated Balance Sheet Data (at period end): |
|||||||||||||||||||||||||||||||
Cash and
restricted cash |
$ | 28,204 | $ | 36,021 | $ | 41,970 | $ | 28,895 | $ | 31,565 | $ | 23,722 | $ | 2,998 | |||||||||||||||||
Total assets
|
498,833 | 552,247 | 532,817 | 551,881 | 599,913 | 649,868 | 70,770 | ||||||||||||||||||||||||
Long-term
debt classified as current due to events of default, net of unamortized discount |
7,926 | 3,531 | 15,009 | 56,116 | 415,606 | 417,310 | 333 | ||||||||||||||||||||||||
Long-term
debt, net of unamortized discount |
453,449 | 492,539 | 510,551 | 432,028 | 38,768 | 35,379 | 63,166 | ||||||||||||||||||||||||
Deferred
revenue |
44,285 | 50,091 | 48,302 | 46,046 | 42,814 | 27,214 | 6,974 | ||||||||||||||||||||||||
Total
liabilities |
617,810 | 678,196 | 682,597 | 657,523 | 657,998 | 661,987 | 91,516 | ||||||||||||||||||||||||
Redeemable
preferred stock |
| | | 26,000 | 26,000 | 26,000 | 21,000 | ||||||||||||||||||||||||
Accumulated
deficit |
(251,559 | ) | (207,775 | ) | (230,621 | ) | (187,468 | ) | (144,667 | ) | (98,701 | ) | (68,784 | ) | |||||||||||||||||
Total
stockholders deficiency |
(118,977 | ) | (125,949 | ) | (149,780 | ) | (131,642 | ) | (84,085 | ) | (38,119 | ) | (41,746 | ) |
Consolidated Data |
|||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nine Months Ended September 30, |
Year Ended December 31, |
||||||||||||||||||||||||||||||
2011 |
2010 |
2010 |
2009 |
2008(1) |
2007(1) |
2006 |
|||||||||||||||||||||||||
(in thousands, except per share data) |
|||||||||||||||||||||||||||||||
Other
Data |
|||||||||||||||||||||||||||||||
Net cash
provided by (used in) operating activities |
$ | 21,607 | $ | 28,677 | $ | 42,640 | $ | 39,679 | $ | 50,948 | $ | 4,744 | $ | (16,600 | ) | ||||||||||||||||
Net cash
provided by (used in) investing activities |
(6,524 | ) | (551 | ) | (1,250 | ) | 4,204 | (9,289 | ) | (149,322 | ) | (3,414 | ) | ||||||||||||||||||
Net cash
provided by (used in) financing activities |
(33,198 | ) | (21,921 | ) | (29,405 | ) | (44,987 | ) | (25,336 | ) | 148,961 | 10,569 |
(1) |
Net revenue for the years ended December 31, 2008 and 2007 does not reflect $19.2 million and $8.5 million, respectively, due to a non-recurring purchase accounting adjustment that required the deferred revenue at the date of the acquisition of Various to be recorded at fair value. Management believes that it is appropriate to add back the deferred revenue adjustment because the average renewal rate of the subscriptions that were the basis for the deferred revenue was approximately 63%. The renewal rate on subscriptions that had already been renewed at least one time since the acquisition was 78%. Therefore, management believes that historical results of Various are reflective, including those revenues that were added back to the adjusted net revenue, of our future results. Please refer to the table contained |
in the Managements Discussion and Analysis of Financial Condition and Results of Operations above entitled Reconciliation of GAAP Net Loss to EBITDA and Adjusted EBITDA. |
(2) |
Basic and diluted loss per share is based on the weighted average number of shares of common stock outstanding, including Series B common stock, and shares underlying common stock purchase warrants which are exercisable at the nominal price of $0.0002 per share. For information regarding the computation of per share amounts, refer to Note C(25), Summary of Significant Accounting Policies Per share data of our consolidated financial statements included elsewhere in this prospectus. |
(3) |
The following pro forma information reflects the following transactions as if they occurred on January 1, 2010: (i) the sale of 5,000,000 shares of our common stock at an initial offering price of $10.00 per share and the receipt of net proceeds of $44.9 million, (ii) the repayment of principal of $40.8 million on outstanding notes, (iii) the issuance of 8,444,853 shares of common stock upon the conversion of the outstanding shares of Series B convertible preferred stock and (iv) the issuance of 4,526,471 shares of common stock underlying 4,003,898 warrants with an exercise price of $0.0002 per share which if not exercised expired upon the closing of the initial public offering. |
Net loss as
reported |
$ | (43,153 | ) | |||
Pro forma
adjustments: |
||||||
1. A
reduction in interest expense resulting from the repayment of a portion of the former Senior Secured Notes and Second Lien Notes using a weighted
average effective interest rate of 20.3% |
8,300 | |||||
2.
Amortization of the $13.0 million beneficial conversion feature in the Old Non-Cash Pay Notes which mature on April 30, 2014 |
(3,200 | ) | ||||
Pro forma net
loss |
$ | (38,053 | )(a) | |||
Weighted
average common shares outstanding basic and diluted |
13,735 | |||||
Pro forma
adjustments: |
||||||
1. Issuance
of common stock upon the conversion of all of the outstanding shares of Series B Convertible Preferred Stock |
8,445 | |||||
2. An
increase in the shares of common stock underlying certain of our warrants resulting from the anti-dilution provisions of such
warrants |
523 | |||||
3. The sale
of common stock in the IPO |
5,000 | |||||
Pro forma
weighted average shares outstanding |
27,703 | |||||
Pro forma net
loss per common share basic and diluted |
$ | (1.37 | )(a) |
(a) |
The pro forma net loss per common share excludes (i) loss on extinguishment of our Old Senior Secured Notes and Old Cash Pay Notes of $8.5 million and (ii) $2.2 million of cumulative compensation expense related to stock options deemed granted upon the completion of the IPO, representing non-recurring charges directly attributable to the IPO. |
Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 |
||||||||||
Percentage of
revenue contributed by affiliates |
46 | % | 44 | % | |||||||
Compensation
to affiliates (in millions) |
$ | 47.9 | $ | 55.8 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Percentage of
revenue contributed by affiliates |
45 | % | 44 | % | 43 | % | |||||||||
Compensation
to affiliates (in millions) |
$ | 71.2 | $ | 56.7 | $ | 62.3 |
|
a significant decline in actual or projected revenue; |
|
a significant decline in performance of certain acquired companies relative to our original projections; |
|
an excess of our net book value over our market value; |
|
a significant decline in our operating results relative to our operating forecasts; |
|
significant change in the manner of our use of acquired assets or the strategy for our overall business; |
|
a significant decrease in the market value of an asset; |
|
a shift in technology demands and development; and |
|
a significant turnover in key management or other personnel. |
Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 |
||||||||||
Net
revenue |
|||||||||||
Internet
|
$ | 233,319 | $ | 241,476 | |||||||
Entertainment
|
16,308 | 16,014 | |||||||||
Total
|
249,627 | 257,490 | |||||||||
Cost of
revenue |
|||||||||||
Internet
|
68,547 | 75,568 | |||||||||
Entertainment
|
11,259 | 9,222 | |||||||||
Total
|
79,806 | 84,790 | |||||||||
Gross
profit |
|||||||||||
Internet
|
164,772 | 165,908 | |||||||||
Entertainment
|
5,049 | 6,792 | |||||||||
Total
|
169,821 | 172,700 | |||||||||
Income (loss)
from operations |
|||||||||||
Internet
|
59,619 | 52,149 | |||||||||
Entertainment
|
(227 | ) | 2,234 | ||||||||
Unallocated
corporate |
(7,011 | ) | (4,080 | ) | |||||||
Total
|
$ | 52,381 | $ | 50,303 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
(in thousands) | |||||||||||||||
Net
revenue |
|||||||||||||||
Internet
|
$ | 321,605 | $ | 306,213 | $ | 306,129 | |||||||||
Entertainment
|
24,392 | 21,479 | 24,888 | ||||||||||||
Total
|
345,997 | 327,692 | 331,017 | ||||||||||||
Cost of
revenue |
|||||||||||||||
Internet
|
97,959 | 78,627 | 81,815 | ||||||||||||
Entertainment
|
12,531 | 13,070 | 14,699 | ||||||||||||
Total
|
110,490 | 91,697 | 96,514 | ||||||||||||
Gross
profit |
|||||||||||||||
Internet
|
223,646 | 227,586 | 224,314 | ||||||||||||
Entertainment
|
11,861 | 8,409 | 10,189 | ||||||||||||
Total
|
235,507 | 235,995 | 234,503 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 | |||||||||||||
(in thousands) | |||||||||||||||
Income (loss)
from operations |
|||||||||||||||
Internet
|
$ | 76,142 | $ | 64,962 | $ | 34,345 | |||||||||
Entertainment
|
1,140 | (439 | ) | (17,748 | ) | ||||||||||
Unallocated
corporate |
(5,547 | ) | (6,128 | ) | (9,488 | ) | |||||||||
Total
|
$ | 71,735 | $ | 58,395 | $ | 7,109 |
Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 |
||||||||||
Adult
Websites |
|||||||||||
New members
|
29,035,924 | 28,636,551 | |||||||||
Beginning
subscribers |
950,705 | 940,444 | |||||||||
New
subscribers(1) |
1,210,111 | 1,402,378 | |||||||||
Terminations
|
1,311,149 | 1,363,003 | |||||||||
Ending
subscribers |
849,667 | 979,819 | |||||||||
Conversion of
members to subscribers |
4.2 | % | 4.9 | % | |||||||
Churn
|
16.2 | % | 15.8 | % | |||||||
ARPU
|
$ | 20.24 | $ | 20.20 | |||||||
CPGA
|
$ | 43.55 | $ | 49.11 | |||||||
Average
lifetime net revenue per subscriber |
$ | 81.51 | $ | 78.99 | |||||||
Net revenue
(in millions) |
$ | 164.0 | $ | 174.6 | |||||||
General
Audience Websites |
|||||||||||
New members
|
4,931,713 | 7,321,237 | |||||||||
Beginning
subscribers |
53,194 | 57,426 | |||||||||
New
subscribers |
69,997 | 89,396 | |||||||||
Terminations
|
81,716 | 89,209 | |||||||||
Ending
subscribers |
41,475 | 57,613 | |||||||||
Conversion of
members to subscribers |
1.4 | % | 1.2 | % | |||||||
Churn
|
19.2 | % | 17.2 | % | |||||||
ARPU
|
$ | 19.90 | $ | 20.33 | |||||||
CPGA
|
$ | 29.03 | $ | 29.80 | |||||||
Average
lifetime net revenue per subscriber |
$ | 74.71 | $ | 88.20 | |||||||
Net revenue
(in millions) |
$ | 8.5 | $ | 10.5 | |||||||
Live
Interactive Video Websites |
|||||||||||
Total minutes
|
25,991,342 | 26,370,149 | |||||||||
Average
revenue per minute |
$ | 2.33 | $ | 2.13 | |||||||
Net revenue
(in millions) |
$ | 60.7 | $ | 56.3 |
(1) |
New subscribers are subscribers who have paid subscription fees to one of our websites during the period indicated in the table but who were not subscribers in the immediately prior period. Members who previously were subscribers, but discontinued their subscriptions either by notifying us of their decisions to discontinue or allowing their subscriptions to lapse by failing to pay their subscription fees, are considered new subscribers when they become subscribers again at any point after their previous subscriptions ended. If a current subscriber to one of our websites becomes a subscriber to another one of our websites, such new subscription would also be counted as a new subscriber since such subscriber would be paying the full subscription fee for each subscription. Historically the Adult websites included subscribers for only our Adult Social Networking websites. In the quarter ended September 30, 2011, management determined that those members who pay for subscriptions to one or more of our premium content adult sites should also be included in the Adult websites of the Internet segment. Historical periods have been restated to reflect this change. |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Adult
Social Networking Websites |
|||||||||||||||
New members
|
38,216,689 | 22,461,322 | 20,738,807 | ||||||||||||
Beginning
subscribers |
916,005 | 896,211 | 919,146 | ||||||||||||
New
subscribers(1) |
1,771,837 | 1,776,916 | 1,935,533 | ||||||||||||
Terminations
|
1,759,528 | 1,757,122 | 1,958,468 | ||||||||||||
Ending
subscribers |
928,314 | 916,005 | 896,211 | ||||||||||||
Conversion of
members to subscribers |
4.6 | % | 7.9 | % | 9.3 | % | |||||||||
Churn
|
16.0 | % | 16.3 | % | 17.8 | % | |||||||||
ARPU
|
$ | 20.47 | $ | 20.73 | $ | 22.28 | |||||||||
CPGA
|
$ | 48.43 | $ | 47.24 | $ | 51.26 | |||||||||
Average
lifetime net revenue per subscriber |
$ | 79.45 | $ | 79.64 | $ | 74.22 | |||||||||
Net
revenue(2) (in millions) |
$ | 226.6 | $ | 225.4 | $ | 242.7 | |||||||||
General
Audience Social Networking Websites |
|||||||||||||||
New members
|
8,985,965 | 8,994,757 | 11,221,993 | ||||||||||||
Beginning
subscribers |
57,431 | 68,647 | 85,893 | ||||||||||||
New
subscribers(1) |
114,709 | 116,608 | 174,290 | ||||||||||||
Terminations
|
118,942 | 127,824 | 191,536 | ||||||||||||
Ending
subscribers |
53,198 | 57,431 | 68,647 | ||||||||||||
Conversion of
members to subscribers |
1.3 | % | 1.3 | % | 1.6 | % | |||||||||
Churn
|
17.3 | % | 15.5 | % | 18.6 | % | |||||||||
ARPU
|
$ | 20.72 | $ | 18.05 | $ | 19.21 | |||||||||
CPGA
|
$ | 29.04 | $ | 41.61 | $ | 36.68 | |||||||||
Average
lifetime net revenue per subscriber |
$ | 91.02 | $ | 74.71 | $ | 66.70 | |||||||||
Net
revenue(2) (in millions) |
$ | 13.8 | $ | 13.7 | $ | 17.8 | |||||||||
Live
Interactive Video Websites |
|||||||||||||||
Total minutes
|
19,566,551 | 17,293,702 | 19,101,202 | ||||||||||||
Average
revenue per minute |
$ | 3.90 | $ | 3.49 | $ | 2.87 | |||||||||
Net
revenue(2) (in millions) |
$ | 76.3 | $ | 60.4 | $ | 54.9 |
(1) |
See the previous Footnote 1 on page 8 3 . |
(2) |
Net revenue for the year ended December 31, 2008 includes the adding back of $19.2 million due to a non-recurring purchase accounting adjustment that required deferred revenue at the date of acquisition of Various to be recorded at fair value. To provide meaningful comparisons between the years shown, management believes that the historical results of Various are reflective of our future results. |
|
our consolidated results of operations for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010; |
|
an analysis of internet segment operating data which are key to an understanding of our operating results and strategies for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010; |
|
our consolidated results of operations for the year ended December 31, 2010 compared to the year ended December 31, 2009; |
|
our consolidated results of operations for the year ended December 31, 2009 compared to the year ended December 31, 2008. |
|
an analysis of internet segment operating data which are key to an understanding of our operating results and strategies for the year ended December 31, 2010 as compared to the year ended December 31, 2009, and for the year ended December 31, 2009 as compared to the year ended December 31, 2008. |
Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 |
||||||||||
Net revenue
|
100.0 | % | 100.0 | % | |||||||
Cost of
revenue |
32.0 | 32.9 | |||||||||
Gross profit
|
68.0 | 67.1 | |||||||||
Operating
expenses: |
|||||||||||
Product
development |
4.8 | 3.6 | |||||||||
Selling and
marketing |
9.1 | 11.9 | |||||||||
General and
administrative |
27.0 | 23.4 | |||||||||
Amortization
of acquired intangibles and software |
4.8 | 7.3 | |||||||||
Depreciation
and other amortization |
1.3 | 1.4 | |||||||||
Total
operating expenses |
47.0 | 47.6 | |||||||||
Income from
operations |
21.0 | 19.5 | |||||||||
Interest
expense, net of interest income |
(26.1 | ) | (26.9 | ) | |||||||
Interest and
penalty related to VAT liability not charged to customers |
(0.6 | ) | (0.7 | ) | |||||||
Foreign
exchange gain (loss) principally related to VAT liability not charged to customers |
(0.6 | ) | 0.2 | ||||||||
(Loss)/gain
on liability related to warrants |
0.2 | 0.2 | |||||||||
Loss on
extinguishment of debt |
(2.9 | ) | | ||||||||
Other
non-operating (expense) income, net |
(1.6 | ) | 0.0 | ||||||||
Loss before
income tax (benefit) |
(10.6 | ) | (7.7 | ) | |||||||
Income tax
(benefit) |
(2.2 | ) | (0.1 | ) | |||||||
Net loss
|
(8.4 | )% | (7.6 | )% |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Net revenue
|
100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Cost of
revenue |
31.9 | 28.0 | 29.2 | ||||||||||||
Gross profit
|
68.1 | 72.0 | 70.8 | ||||||||||||
Operating
expenses: |
|||||||||||||||
Product
development |
3.7 | 4.1 | 4.4 | ||||||||||||
Selling and
marketing |
10.8 | 13.1 | 17.9 | ||||||||||||
General and
administrative |
23.1 | 23.5 | 26.7 | ||||||||||||
Amortization
of acquired intangibles and software |
7.1 | 10.8 | 11.0 | ||||||||||||
Depreciation
and other amortization |
1.3 | 1.5 | 1.3 | ||||||||||||
Impairment of
goodwill |
| | 2.9 | ||||||||||||
Impairment of
other intangible assets |
1.4 | 1.2 | 4.5 | ||||||||||||
Total
operating expenses |
47.4 | 54.2 | 68.7 | ||||||||||||
Income from
operations |
20.7 | 17.8 | 2.1 | ||||||||||||
Interest
expense, net of interest income |
(25.6 | ) | (28.1 | ) | (24.3 | ) | |||||||||
Other finance
expenses |
(1.3 | ) | | |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 | |||||||||||||
Interest and
penalty related to VAT liability not charged to customers |
(0.7 | )% | (1.3 | )% | (2.5 | )% | |||||||||
Net loss on
extinguishment and modification of debt |
(2.1 | ) | (2.2 | ) | | ||||||||||
Foreign
exchange (gain) loss principally related to VAT liability not charged to customers |
0.2 | (1.7 | ) | 4.6 | |||||||||||
Gain on
elimination of liability for United Kingdom VAT not charged to customers |
| 0.5 | | ||||||||||||
Gain on
settlement of liability related to VAT not charged to customers |
| 0.1 | 0.8 | ||||||||||||
Gain on
liability related to warrants |
0.0 | 0.8 | | ||||||||||||
Other
non-operating expense net |
(3.8 | ) | (0.1 | ) | (0.1 | ) | |||||||||
Loss before
income tax benefit |
(12.6 | ) | (14.2 | ) | (19.4 | ) | |||||||||
Income tax
benefit |
0.1 | 1.6 | 5.5 | ||||||||||||
Net loss
|
(12.5 | )% | (12.6 | )% | (13.9 | )% |
Year Ended December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
($ in millions) |
2009 |
2008 |
|||||||||
Net revenue
|
$ | 327.7 | $ | 331.0 | |||||||
Purchase
accounting adjustment |
| 19.2 | |||||||||
Adjusted
revenue |
$ | 327.7 | $ | 350.2 | |||||||
Internet
revenue |
$ | 306.2 | $ | 306.1 | |||||||
Purchase
accounting adjustment |
| 19.2 | |||||||||
Adjusted net
internet revenue |
306.2 | 325.3 | |||||||||
Entertainment
revenue |
21.5 | 24.9 | |||||||||
Total
adjusted revenue |
$ | 327.7 | $ | 350.2 |
our operating performance year over year without taking into account non-recurring items and the wide disparity in the amounts of the interest, depreciation and amortization and tax expense items set forth in the financial statements.
Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 |
||||||||||
(in thousands) (unaudited) | |||||||||||
GAAP net loss
|
$ | (20,938 | ) | $ | (19,480 | ) | |||||
Add: Interest
expense, net |
65,097 | 69,128 | |||||||||
(Subtract):
Income tax benefit |
(5,542 | ) | (219 | ) | |||||||
Add:
Amortization of acquired intangible assets and software |
11,906 | 18,793 | |||||||||
Add:
Depreciation and other amortization |
3,268 | 3,556 | |||||||||
EBITDA
|
$ | 53,791 | $ | 71,778 | |||||||
Add:
Broadstream arbitration provision, including related legal fees |
7,394 | | |||||||||
Add
(subtract): (gain) loss related to VAT liability not charged to customers |
2,931 | 1,306 | |||||||||
Add: Loss of
extinguishment of debt |
7,312 | | |||||||||
Add: Stock
Compensation Expense |
2,554 | | |||||||||
Add:
Severance Costs |
388 | | |||||||||
Adjusted
EBITDA |
$ | 74,370 | $ | 73,084 |
Consolidated Data |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year Ended December 31, |
|||||||||||||||
2010 |
2009 |
2008 |
|||||||||||||
(in thousands) | |||||||||||||||
GAAP net loss
|
$ | (43,153 | ) | $ | (41,216 | ) | $ | (45,966 | ) | ||||||
Add: Interest
expense, net |
88,508 | 92,139 | 80,510 | ||||||||||||
Subtract:
Income tax benefit |
(486 | ) | (5,332 | ) | (18,176 | ) | |||||||||
Add:
Amortization of acquired intangible assets and software |
24,461 | 35,454 | 36,347 | ||||||||||||
Add:
Depreciation and other amortization |
4,704 | 4,881 | 4,502 | ||||||||||||
EBITDA
|
$ | 74,034 | $ | 85,926 | $ | 57,217 | |||||||||
Add: Deferred
revenue purchase accounting adjustment(1) |
| | 19,200 | ||||||||||||
Add:
Impairment of goodwill |
| | 9,571 |
Consolidated Data |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year Ended December 31, |
|||||||||||||||
2010 |
2009 |
2008 | |||||||||||||
(in thousands) | |||||||||||||||
Add:
Impairment of other intangible assets |
$ | 4,660 | $ | 4,000 | $ | 14,860 | |||||||||
Add:
Broadstream arbitration provision |
13,000 | | | ||||||||||||
Add
(subtract): Loss (gain) related to VAT liability not charged to customers |
1,683 | 7,942 | (9,456 | ) | |||||||||||
Add: Net Loss
on extinguishment and modification of debt |
7,457 | 7,240 | | ||||||||||||
Add: Other
finance expenses |
4,562 | | | ||||||||||||
Subtract:
Non-recurring refund by former owner of litigation costs for legacy patent case |
| (2,685 | ) | | |||||||||||
Adjusted
EBITDA(2) |
$ | 105,396 | $ | 102,423 | $ | 91,392 |
(1) |
Net revenue for the year ended December 31, 2008 does not reflect $19.2 million due to a non-recurring purchase accounting adjustment that required the deferred revenue at the date of the acquisition of Various to be recorded at fair value. Management believes that it is appropriate to add back the deferred revenue adjustment because the average renewal rate of the subscriptions that were the basis for the deferred revenue was approximately 63%. The renewal rate on subscriptions that had already been renewed at least one time since the acquisition was 78%. Therefore, management believes that historical results of Various are reflective of our future results, including those revenues that were added back to adjusted EBITDA. |
(2) |
For the year ended December 31, 2008 and for the quarters ended March 31, 2008, June 30, 2008, September 30, 2008, March 31, 2009 and June 30, 2009, we failed to satisfy our EBITDA covenants with respect to our 2006 Notes and 2005 Notes because of operating performance. For the quarters ended March 31, 2008, June 30, 2008 and September 30, 2008 we failed to satisfy our EBITDA covenants with respect to the New First Lien Notes and the Second Lien Subordinated Secured Notes due to the liability related to VAT not charged to customers and the purchase accounting adjustment due to the required reduction of the deferred revenue liability to fair value. On October 8, 2009, these events of default were cured. For the quarter ended September 30, 2009, we met our EBITDA covenants with respect to our 2006 Notes and 2005 Notes, each as amended. For the year ended December 31, 2009 and the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010, we met our EBITDA covenants with respect to the New First Lien Notes and the Second Lien Subordinated Secured Notes. For more information regarding this and other events of default under our note agreements, see the section entitled Description of Indebtedness. The above mentioned debt was paid off with the proceeds of the New Financing. Our new note agreements contain material debt covenants based on our maintaining specified levels of EBITDA (as it is defined in the particular agreement as noted below). Specifically, we are required to maintain the following EBITDA levels for our outstanding debt: |
|
For each of the fiscal quarters ending through September 30, 2011, September 30, 2012 and September 30, 2013, our EBITDA (as defined) on a consolidated basis for the four consecutive fiscal quarters ending on such date needs to be greater than $85 million, $90 million and $95 million, respectively. Our EBITDA for the four quarters ended December 31, 2010, as defined in the relevant documents, was $105.4 million. |
Quarter Ended |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31, |
June 30, |
September 30, |
December 31, |
||||||||||||||||
(in thousands, except per share data) | |||||||||||||||||||
2011 |
|||||||||||||||||||
Net revenue
|
$ | 83,520 | $ | 83,371 | $ | 82,736 | | ||||||||||||
Gross profit
|
56,759 | 58,324 | 54,823 | | |||||||||||||||
Income from
operations |
19,675 | 17,996 | 14,711 | | |||||||||||||||
Net loss
|
(3,681 | ) | (11,861 | ) | (5,396 | ) | | ||||||||||||
Net loss per
common share basic and diluted |
(0.27 | ) | (0.55 | ) | (0.18 | ) | | ||||||||||||
2010 |
|||||||||||||||||||
Net revenue
|
$ | 86,205 | $ | 84,623 | $ | 86,663 | $ | 88,506 | |||||||||||
Gross profit
|
56,563 | 56,407 | 59,732 | 62,806 | |||||||||||||||
Income from
operations |
12,974 | 15,615 | 21,716 | 21,432 | |||||||||||||||
Net loss
|
(8,269 | ) | (4,931 | ) | (6,281 | ) | (23,672 | ) | |||||||||||
Net loss per
common share basic and diluted |
(0.60 | ) | (0.36 | ) | (0.46 | ) | (1.71 | ) | |||||||||||
2009 |
|||||||||||||||||||
Net revenue
|
$ | 84,125 | $ | 80,800 | $ | 79,514 | $ | 83,253 | |||||||||||
Gross profit
|
59,146 | 58,300 | 58,260 | 60,289 | |||||||||||||||
Income from
operations |
15,017 | 14,545 | 15,839 | 12,994 | |||||||||||||||
Net loss
|
(3,140 | ) | (17,651 | ) | (6,623 | ) | (13,802 | ) | |||||||||||
Net loss per
common share basic and diluted |
(0.23 | ) | (1.29 | ) | (0.48 | ) | (1.00 | ) |
|
For the last four quarters for any period ended through September 30, 2011, September 30, 2012 and September 30, 2013, our EBITDA on a consolidated basis for the year ended on such date needs to be greater than $85.0 million, $90.0 million and $95.0 million, respectively. Our EBITDA for the nine months ended September 30, 2011 and the four quarters ended December 31, 2010 was $53.8 million and $74.0 million, respectively. |
Payments due by period |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total |
Less Than 1 Year |
1-3 Years |
3-5 Years |
More Than 5 Years |
|||||||||||||||||||
($ in thousands) | |||||||||||||||||||||||
Long-term
Notes Payable, including current portion: |
|||||||||||||||||||||||
Senior
Secured Notes(1) |
$ | 235,332 | $ | 6,957 | $ | 228,375 | | | |||||||||||||||
Cash Pay
Notes(1) |
10,631 | 314 | 10,317 | | |||||||||||||||||||
Non-Cash Pay
Notes(1) |
250,849 | | 250,849 | | | ||||||||||||||||||
Sellers
Agreements(2) |
2,250 | 1,000 | 1,250 | | | ||||||||||||||||||
Operating
Leases(3) |
11,299 | 2,282 | 6,478 | 852 | 1,687 | ||||||||||||||||||
Other(4) |
4,164 | 4,164 | | | | ||||||||||||||||||
Total(5) |
$ | 514,525 | $ | 14,717 | $ | 497,269 | $ | 852 | $ | 1,687 |
(1) |
We used the net cash proceeds from our initial public offering of our common stock to repay a portion of the Senior Secured Notes and Cash Pay Notes pro rata at a redemption price of 110%, plus accrued and unpaid interest. The Senior Secured and Cash Pay Notes mature on September 30, 2013. The Non-Cash Pay Notes mature on April 30, 2014. |
(2) |
Agreements with the former owners of Various recorded at present value of $2.3 million using discount rate of 15%. |
i. |
Represents our minimum rental commitments for non-cancellable operating leases of office space. |
ii. |
Other commitments and obligations are comprised of contracts with software licensing, communications, computer hosting, and marketing service providers. These amounts totaled $4.2 million for less than one year. Contracts with other service providers are for 30 day terms or less. |
iii. |
Interest expense has been excluded from the Contractual Obligations table above. As of September 30, 2011, the Company had $235.3 million and $10.6 million of Senior Secured Notes and Cash Pay Notes, respectively, which would result in an annual cash interest expense obligation of $34.4 million before giving effect to required principal reductions from excess cash flow. No cash interest payments are payable in respect of Non-Cash Pay Notes. |
|
our ability to service and repay our indebtedness, including our repayment obligations in the event of a change of control; |
|
the insufficiency of the collateral relating to the Registrable Notes or any failure to record and/or perfect security interests in such collateral; |
|
our history of breaching certain covenants in our note agreements and the Indentures and the risk of future breaches; |
|
our failure to maintain financial ratios, satisfy financial tests and remain in compliance with the Indentures; |
|
the lack of a public market for the Registrable Notes; |
|
a courts ability to void the subsidiary guarantees based on fraudulent conveyance laws; |
|
any dilutive effect experienced as a result of purchasing Registrable Shares from the selling securityholders or as a result of future equity issuances; |
|
our ability to raise capital in the future; |
|
the ability of our executive officers, directors and their affiliates to control matters requiring stockholder approval by virtue of their ownership of a substantial percentage of common stock; |
|
our ability to continue to pay the increased costs relating to being a public company; |
|
our ability to maintain effective internal controls; |
|
the volatility of our stock price; |
|
the effect of anti-takeover provisions in our articles of incorporation or provisions of Nevada law on any potential change in control; |
|
our history of significant operating losses and the risk of incurring additional net losses in the future; |
|
our reliance on subscribers to our websites for most of our revenue; |
|
competition from other social networking, internet personals and adult-oriented websites; |
|
our reliance on our affiliate network to drive traffic to our websites; |
|
increased subscriber churn or subscriber upgrade and retention costs impact on our financial performance; |
|
our ability to generate significant revenue from internet advertising; |
|
our ability to maintain and enhance our brands; |
|
unfavorable economic and market conditions; |
|
our reliance on credit cards as a form of payment; |
|
our ability to keep up with new technologies and remain competitive; |
|
we may be held secondarily liable for the actions of our affiliates; |
|
our reliance on internet search websites to direct traffic to our websites; |
|
our reliance on member-generated content to our websites; |
|
security breaches may cause harm to our subscribers or our systems; |
|
we may be subject to liability arising from our media content; |
|
our ability to safeguard the privacy of the users of our websites; |
|
our ability to enforce and protect our intellectual property rights; |
|
we may be subject to claims that we have violated the intellectual property rights of others; |
|
our ability to obtain or maintain key website addresses; |
|
our ability to scale and adapt our network infrastructure; |
|
the loss of our main data center or backup data center or other parts of our infrastructure; |
|
systems failures and interruptions in our ability to provide access to our websites and content; |
|
companies providing products and services on which we rely may refuse to do business with us; |
|
changes in government laws affecting our business; |
|
we may be liable if one of our members or subscribers harms another or misuses our websites; |
|
risks associated with additional taxes being imposed by any states or countries; |
|
we may have unforeseen liabilities from our acquisition of Various and our recourse may be limited; |
|
we may not be successful in integrating any future acquisitions we make; |
|
risks of international expansion; |
|
our reliance on key personnel; |
|
our ability to attract internet traffic to our websites; |
|
risks associated with currency fluctuations; and |
|
risks associated with our litigation and legal proceedings. |
Name |
Age |
Position |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Marc H. Bell
|
44 | Chief
Executive Officer, President and Director |
||||||||
Daniel C. Staton
|
58 | Chairman of the Board and Treasurer |
||||||||
Ezra Shashoua
|
56 | Chief
Financial Officer |
||||||||
Anthony Previte
|
46 | Chief
Operating Officer |
||||||||
Robert Brackett
|
34 | President, internet group |
||||||||
David Gellen
|
4 4 | Senior Vice President and General Counsel |
||||||||
Robert B. Bell
|
72 | Director |
||||||||
Barry W.
Florescue |
6 8 | Director |
||||||||
James
Jim LaChance |
46 | Director |
||||||||
Toby E. Lazarus
|
44 | Director |
||||||||
Jason Smith
|
39 | Director |
|
appointing, replacing and overseeing the work of the registered independent public accounting firm, including compensation and any fees paid to such accounting firm in relation to its services; |
|
appointing an internal audit officer to handle the internal audit function of the Company, and reviewing such appointment as necessary; |
|
reviewing and discussing with management, the internal audit officer and the registered independent accounting firm our quarterly and annual financial statements and discussing with management our earnings releases; |
|
pre-approving all auditing services and permissible non-audit services provided by our registered independent public accounting firm; |
|
engaging in a dialogue with the registered independent public accounting firm regarding relationships that may adversely affect the independence of the registered independent public accounting firm and, based on such review, assessing the independence of the registered independent public accounting firm; |
|
taking appropriate steps to confirm the independence of the independent public accounting firm, including recommending to the board of directors to take appropriate action to oversee the independence of the independent public accounting firm; |
|
providing the audit committee report to be filed with the SEC in our annual proxy statement; |
|
establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, including the confidential anonymous submission by our employees of concerns regarding questionable accounting or auditing matters; |
|
reviewing and discussing with our Chief Executive Officer, Chief Financial Officer, management, internal audit officer and registered independent accounting firm, managements annual assessment of the effectiveness of the internal controls; |
|
reviewing and discussing with our Chief Executive Officer, Chief Financial Officer, management, internal audit officer and registered independent accounting firm the adequacy and effectiveness of our internal controls over our financial reporting including any significant deficiencies in the design or operation of our internal controls or material weaknesses and the adequacy and effectiveness of our disclosure controls and procedures; |
|
reviewing and approving related party transactions in accordance with our related party transaction policy; |
|
reporting on its activities in our annual proxy statement; and |
|
reviewing and assessing annually the adequacy of the audit committee charter. |
|
reviewing and determining the compensation of our executive officers; |
|
recommending to the Board the cash compensation of the Companys directors; |
|
granting equity and other incentive awards to executive officers, directors and other eligible individuals under our equity plans and determining the terms and conditions of such awards; |
|
making recommendations to the board of directors with respect to amendments to our equity plans and changes in the number of shares reserved for issuance thereunder; |
|
issuing a report on executive compensation in accordance with applicable rules and regulations of the SEC for inclusion in our annual proxy statement; |
|
evaluating the performance of our Chairman of the Board and Chief Executive Officer (and such other executive officers as it deems appropriate) in light of the our current business environment and our strategic objectives; |
|
evaluating the need for, and provisions of, employment agreements or severance arrangements for the executive officers or, if so directed, our board of directors or other officers; |
|
reviewing trends in executive compensation, overseeing the development of new compensation plans, and, when necessary, approving the revision of existing executive compensation plans; and |
|
reviewing and assessing annually the compensation committees performance. |
|
leading the search for and recommending qualified candidates or nominees for the board of directors to be proposed for election by the stockholders and individuals to be considered by the board of directors to fill vacancies; |
|
reviewing periodically the criteria for the selection of new directors and recommending any proposed changes to our board of directors; |
|
developing and recommending to our board of directors a set of corporate governance principles applicable to us; |
|
monitoring and overseeing matters of corporate governance, including the evaluation of board performance and processes and the independence of directors; and |
|
reviewing and assessing annually the performance of the nominating and corporate governance committee. |
|
Marc H. Bell, Chief Executive Officer and President |
|
Daniel C. Staton, Chairman of the Board and Treasurer |
|
Ezra Shashoua, Chief Financial Officer |
|
Anthony Previte, Chief Operating Officer |
|
Robert Brackett, President, internet group |
|
base salary; |
|
bonuses; |
|
long-term equity incentive compensation in the form of stock options under our 2008 Stock Option Plan and, subject to the approval of our compensation committee, restricted stock following the consummation of this offering; and |
|
retirement benefits. |
|
the executive officers total compensation package, both individually and relative to other executive officers; and |
|
the individual performance of the executive officer. |
Name and Principal Position |
Year |
Salary ($) |
Bonus ($) |
All Other Compensation ($) |
Total ($) |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Marc H. Bell,
|
2010 | 291,666 | (1) | | 22,582 | (2) | 314,248 | |||||||||||||||
Chief Executive
Officer and President |
2009 | 250,000 | (1) | | 15,634 | (2) | 265,634 | |||||||||||||||
2008 | 250,000 | (1) | | 5,404 | (2) | 255,404 | ||||||||||||||||
Daniel C.
Staton, |
2010 | 291,666 | (3) | | 69,414 | (4) | 361,080 | |||||||||||||||
Chairman of the
Board and Treasurer |
2009 | 250,000 | (3) | | 72,296 | (4) | 322,296 | |||||||||||||||
2008 | 250,000 | (3) | | 16,316 | (4) | 266,316 | ||||||||||||||||
Ezra Shashoua,
|
2010 | 460,000 | 266,667 | (5) | | 726,667 | ||||||||||||||||
Chief Financial
Officer |
2009 | 400,000 | | | 400,000 | |||||||||||||||||
2008 | 300,000 | | | 300,000 | ||||||||||||||||||
Anthony Previte,
|
2010 | 574,999 | 150,000 | | 724,999 | |||||||||||||||||
Chief Operating
Officer |
2009 | 500,000 | | | 500,000 | |||||||||||||||||
2008 | 475,000 | (6) | | 39,149 | (7) | 514,149 | ||||||||||||||||
Robert Brackett,
|
2010 | 365,000 | 111,200 | | 477,200 | |||||||||||||||||
President,
internet group |
2009 | 337,917 | 288,667 | (8) | 626,584 | |||||||||||||||||
2008 | 328,326 | 413,167 | (9) | | 741,493 |
(1) |
This amount reflects the portion of the payment to Bell & Staton, Inc., pursuant to the management agreement, that is attributable to Mr. Bell. |
(2) |
This amount represents certain subsidies we provide Mr. Bell for the cost of healthcare coverage. |
(3) |
This amount reflects the portion of the payment to Bell & Staton, Inc., pursuant to the management agreement, that is attributable to Mr. Staton. |
(4) |
This amount represents reimbursement for car lease expenses and the amount of certain subsidies we provide Mr. Staton for the cost of healthcare coverage. |
(5) |
This amount includes cash compensation of $116,667 for Mr. Shashoua in 2010 pursuant to his amended and restated employment agreement, dated April 1, 2010, which provided for additional cash compensation of $233,333 in connection with his continued employment through the completion of the IPO. The Company has determined that half of the compensation was earned in 2010 and the other half will be earned in 2011. |
(6) |
This amount reflects $50,000 in consulting fees paid under a consulting agreement pursuant to which Mr. Previte served as head of our entertainment group prior to becoming our Chief Operating Officer on February 26, 2008 as well as $425,000 in salary related to his service as our Chief Operating Officer. |
(7) |
This amount represents relocation expenses for Mr. Previte from Los Angeles, California to Sunnyvale, California. |
(8) |
This amount reflects $241,667 which is the second installment of Mr. Bracketts retention bonus and bonus payments with respect to the first, second and fourth fiscal quarters of 2009 as follows: $14,000 for the first quarter, $23,000 for the second quarter, $10,000 for the fourth quarter. |
(9) |
This amount reflects bonus payments with respect to each fiscal quarter of 2008 as follows: $43,750 for the first quarter, $48,125 for the second quarter, $48,125 for the third quarter and $31,500 for the fourth quarter, plus a $241,667 retention bonus. |
Termination |
Severance |
|||||
---|---|---|---|---|---|---|
Without
Cause/For Good Reason |
$ | 480,000 |
Termination |
Severance |
|||||
---|---|---|---|---|---|---|
Without Cause
|
$ | 1,800,000 |
Termination |
Severance |
|||||
---|---|---|---|---|---|---|
Without Cause
|
$ | 1,188,000 |
Option Awards |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Number of Securities Underlying Unexercised Options |
|||||||||||||||||||||||
Name |
Exercisable |
Unexercisable |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options |
Option Exercise Price(1) |
Option Expiration Date |
||||||||||||||||||
Marc H. Bell
|
50,000 | | | $ | 10.00 | 07/07/18 | |||||||||||||||||
Daniel C.
Staton |
50,000 | | | $ | 10.00 | 07/07/18 | |||||||||||||||||
Ezra Shashoua
|
50,000 | | | $ | 10.00 | 07/07/18 | |||||||||||||||||
Anthony
Previte |
37,500 | | | $ | 10.00 | 07/07/18 | |||||||||||||||||
Robert
Brackett |
25,000 | | | $ | 10.00 | 07/07/18 |
(1) |
Based upon an initial public offering price of $10.00 per share of common stock. |
Name |
Fees Earned or Paid in Cash ($) |
Total ($) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Robert Bell
|
30,000 | 30,000 | ||||||||
Barry
Florescue |
30,000 | 30,000 | ||||||||
James
LaChance |
30,000 | 30,000 | ||||||||
Toby Lazarus
|
30,000 | 30,000 | ||||||||
Jason Smith
|
30,000 | 30,000 |
|
the principals granted the sellers an option to purchase from time to time from the principals, shares of our common stock and Series B Convertible Preferred Stock at the exercise price of $0.20 per share, at any time until the consummation of an initial public offering. The option was subject to a vesting schedule pursuant to which the option vested in part immediately, and in part after each of six, nine and twelve months; |
|
in the event (i) there is a default under the letter agreement; (ii) the outstanding balance of the First Lien Notes held by the sellers is greater than or equal to $50.0 million, and there is an interest or principal payment default under the 2007 Securities Purchase Agreement, which is not cured at least two days prior to the applicable time frame within which cure is permitted under the 2007 Securities Purchase Agreement; (iii) the outstanding balance of the notes is less than $50.0 million, and there is an interest or principal payment default under the 2007 Securities Purchase Agreement that has been called for immediate payment by the Required Holders (as defined in the 2007 Securities Purchase Agreement) pursuant to the terms of the 2007 Securities Purchase Agreement; or (iv) the First Lien Notes are not paid in full within 3.5 years after issuance, the sellers shall have the right to require the principals to purchase |
their outstanding First Lien Notes, in whole or in part, together with the related warrants to purchase shares of our common stock that are then still outstanding, and the principals will purchase such First Lien Notes and related outstanding warrants, at a purchase price equal to the then outstanding principal amount of the First Lien Notes required to be purchased, plus accrued and unpaid interest on such First Lien Notes through the date of purchase; |
|
the principals granted the sellers a security interest in all our equity securities owned by the principals to secure the performance of the principals obligations referenced in the foregoing item; |
|
in the event that, at any time and from time to time, after the issuance of the First Lien Notes to sellers, any seller receives a bid price equal to or greater than 97% of par plus accrued and unpaid interest to purchase such sellers First Lien Notes and related outstanding warrants, in whole or in part, such seller shall sell its First Lien Notes and the related outstanding warrants pursuant to such bid; and (ii) each seller shall, at all times for so long as it owns any First Lien Notes, maintain with Imperial Capital, LLC and/or such other broker as the principals shall designate an offer price not greater than par plus accrued and unpaid interest to sell its First Lien Notes and related outstanding warrants; and |
|
for so long as any First Lien Notes owned by any seller remain outstanding, the principals are restricted from selling, transferring or otherwise disposing of their First Lien Notes except subject to certain exceptions. |
|
the principals no longer have an obligation to purchase the sellers First Lien Notes or to grant a security interest in any equity securities owned by the principals; |
|
the sellers no longer have an obligation to sell their First Lien Notes at a certain bid price; |
|
the principals granted the sellers an immediately exercisable option to purchase from time to time from the principals, an aggregate of approximately 1,000,000 shares of our common stock at the exercise price of $0.20 per share, at any time until the consummation of an initial public offering; |
|
the principals are no longer restricted from selling their First Lien Notes. Instead, until the consummation of an initial public offering, no principal could sell, transfer or otherwise dispose of any of our securities subject to the purchase option or permit them to become subject to any liens; and |
|
the letter agreement terminates upon the consummation of the initial public offering and the completion of transfer of any equity securities required by the amendment to be transferred. |
Entity |
Cash Pay Notes |
|||||
---|---|---|---|---|---|---|
Marc H. Bell
|
$5.3 million |
|||||
Staton Family
Investments Ltd. |
$5.3 million |
Name and Address of Beneficial Owner |
Amount and Nature of Beneficial Ownership |
Percent of Class(1) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Directors
and Executive Officers: |
||||||||||
Daniel C.
Staton |
6,606,020 | (2) | 21.2 | % | ||||||
Marc H. Bell
|
5,147,671 | (3) | 16.5 | % | ||||||
Robert
Brackett |
| | ||||||||
Anthony
Previte |
| | ||||||||
Ezra Shashoua
|
10,000 | (4) | | |||||||
Robert B.
Bell |
| | ||||||||
Barry
Florescue |
1,148,302 | (5) | 3.7 | % | ||||||
Jim LaChance
|
| | ||||||||
Toby E.
Lazarus |
| | ||||||||
Jason H.
Smith |
| | ||||||||
Directors and
Executive Officers as a group (11 persons) |
12,911,993 | 41.4 | % | |||||||
5%
Stockholders: |
||||||||||
Absolute
Income Fund, L.P. |
1,991,703 | (6) | 6.4 | % | ||||||
Andrew B.
Conru Trust Agreement. |
8,860,991 | (7) | 24.2 | % | ||||||
Global
Investment Ventures LLC. |
5,687,990 | (8) | 15.9 | % | ||||||
Staton Family
Perpetual Trust. |
1,688,970 | (9) | 5.4 | % | ||||||
Staton Family
Investments Ltd. |
4,707,058 | (10) | 15.1 | % |
|
The person beneficially owns less than 1% of FriendFinders outstanding common stock. |
(1) |
Based on 31,219,644 shares of our common stock outstanding as of December 14 , 2011. |
(2) |
Shares of common stock beneficially owned include: 59,997 shares of common stock, 3,432,893 shares of common stock owned by Staton Family Investments, Ltd.; 1,274,165 shares of common stock purchased from IBD by Strategic Media LLC over which Staton Family Investments, Ltd. holds sole dispositive and voting power; 149,995 shares of common stock owned by Staton Media LLC; and 1,688,970 shares of common stock owned by Staton Family Perpetual Trust. Mr. Staton is a member of Staton Family Investments, Ltd. and has voting and investment power over its shares. Mr. Staton is a member and the manager of Staton Media LLC and has voting and investment power over its shares. Mr. Staton is also the trustee of Staton Family Perpetual Trust and has voting and investment power over its shares, which are held in trust for the benefit of his minor children. |
(3) |
Shares of common stock beneficially owned include: 5,147,671 shares of common stock. Shares of common stock beneficially owned do not include 184,190 shares of common stock held by the Bell Family 2003 Charitable Lead Annuity Trust for which Mr. Bell does not hold voting or dispositive power. |
(4) |
These shares are owned by The Shashoua Childrens Trust UAD January 1, 1994, Abraham Shashoua, Trustee. |
(5) |
Shares of common stock beneficially owned include: 1,086,366 shares of common stock owned by Florescue Family Corporation and 61,936 shares of common stock issuable upon the conversion of its Non-Cash Pay Notes. Mr. Florescue is President of Florescue Family Corporation and has voting and investment power over its shares. |
(6) |
Shares of common stock beneficially owned include: 1,991,703 shares of common stock. Income Fund GP Limited (IFGPL) is the general partner of Absolute Income Fund, L.P. and has shared voting and dispositive power over the shares held by Absolute Income Fund, L.P. Ben Christian Rispoli is the sole director of IFGPL. Greymoor International Limited is the sole shareholder of IFGPL and is a wholly-owned subsidiary of Neville Holdings Group Limited. Olivier Claude Michel Bassou and Olivier Pierre Adam are the directors of Greymoor International Limited and Neville Holdings Group Limited. Mr. Rispoli, Mr. Bassou and Mr. Adam share voting and dispositive power over the shares held by Absolute Income Fund, L.P. The address of Absolute Income Fund, L.P. is Suite 4-213-4 Governors Square, PO Box 31298, Grand Cayman, KY1-1206, Cayman Islands. |
(7) |
Shares of common stock beneficially owned include: 3,380,879 shares of common stock and 5,480,112 shares of common stock issuable upon the conversion of its Non-Cash Pay Notes. To the best of our knowledge, Andrew Conru holds investment and voting power over the securities held by the Andrew B. Conru Trust Agreement. The address of the Andrew B. Conru Trust Agreement is 2125 1st Avenue #2904, Seattle, Washington 98121. |
(8) |
This number is based solely on the Schedule 13D filed with the SEC on September 16, 2011 by Global Investment Ventures LLC (Global Investment). The shares of common stock beneficially owned include vested warrants to purchase 4,500,170 shares of common stock. According to the Schedule 13D, Global Investment shares voting and dispositive power with Anthony Bobulinski, the managing member and sole member of Global Investment. The principal business address of Global Investment is 10330 Santa Monica Blvd., Los Angeles, CA 90025. |
(9) |
Shares of common stock beneficially owned include: 1,688,970 shares of common stock. Mr. Staton is the trustee of Staton Family Perpetual Trust and has voting and investment power over its shares, which are held in trust for the benefit of his minor children. The address for Staton Family Perpetual Trust is 6800 Broken Sound Parkway, Boca Raton, FL 33487. |
(10) |
Shares of common stock beneficially owned include: 3,432,893 shares of common stock and 1,274,165 shares of common stock purchased from IBD by Strategic Media LLC over which Staton Family Investments, Ltd. holds sole dispositive and voting power. Mr. Staton is a member of Staton Family Investments, Ltd. and has voting and investment power over its shares. The address for Staton Family Investments, Ltd. is 6800 Broken Sound Parkway, Boca Raton, FL 33487. |
(a)
|
any Person that is a Subsidiary on such Determination Date (or would become a Subsidiary on such Determination Date in connection with the transaction that requires the determination of the Consolidated Coverage Ratio) shall be deemed to have been a Subsidiary at all times during such Measurement Period, |
(b)
|
any Person that is not a Subsidiary on such Determination Date (or would cease to be a Subsidiary on such Determination Date in connection with the transaction that requires the determination of the Consolidated Coverage Ratio) will be deemed not to have been a Subsidiary at any time during such Measurement Period, |
(c)
|
if any Obligor shall have in any manner (i) acquired (including through an asset acquisition or the commencement of activities constituting such operating business), or (ii) disposed of (including by way of an Asset Sale or the termination or discontinuance of activities constituting such operating business) any operating business during such Measurement Period or after the end of such Measurement Period and on or prior to the Determination Date, such calculation shall be made on a pro forma basis in accordance with GAAP as if, in the case of an asset acquisition or the commencement of activities constituting such operating business, all such transactions had been consummated on the first day of such Measurement Period and, in the case of an Asset Sale or termination or discontinuance of activities constituting such operating business, all such transactions had been consummated prior to the first day of such Measurement Period; provided, however, that such pro forma adjustment shall not give effect to the Consolidated EBITDA of any acquired Person to the extent that such Persons net income would be excluded pursuant to clauses (a) through (g) of the definition of Consolidated Net Income; and |
(d)
|
any Indebtedness incurred and proceeds thereof received and applied as a result of the transaction giving rise to the need to calculate the Consolidated Coverage Ratio will be deemed to have been so incurred, received and applied on the first day of such Measurement Period. |
(a)
|
the net income (or loss) of any Person that is not a Subsidiary of FFN except to the extent of the amount of dividends or other distributions actually paid to FFN or such Subsidiary by such Person during such period, |
(b)
|
gains or losses on Asset Sales by FFN or its Subsidiaries, |
(c)
|
all extraordinary gains and extraordinary losses, including such gains and losses derived from Extraordinary Receipts, |
(d)
|
the cumulative effect of changes in accounting principles, |
(e)
|
any net income of any Subsidiary if such Subsidiary is subject to restrictions, directly or indirectly, by contract, operation of law, pursuant to its charter or otherwise on the payment of dividends or the making of distributions by such Subsidiary to such Person except that: |
(i)
|
such Persons equity in the net income of any such Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been paid or distributed during such period to such Person as a dividend or other distribution (provided that such ability is not due to a waiver of such restriction), and |
(ii)
|
such Persons equity in a net loss of any such Subsidiary for such period shall be included in determining such Consolidated Net Income regardless of any such restriction, |
(f)
|
in the case of a successor to such Person by consolidation or merger or as a transferee of such Persons assets, any net income or loss of the successor corporation prior to such consolidation, merger or transfer of assets; and |
(g)
|
the tax effect of any of the items described in clauses (a) through (f) above. |
(a)
|
the aggregate amounts payable in connection with, and other consideration for (in each case, including all transaction costs and all Indebtedness, liabilities and Contingent Obligations incurred or assumed in connection therewith or otherwise reflected in a consolidated balance sheet of any Obligor and the proposed acquisition target and including any earnout or similar payment obligations), any acquisition, whether in one transaction or a series of related transactions, shall not exceed $20,000,000; |
(b)
|
if such acquisition is of Capital Stock in any Person, the acquisition shall be of 100% of the Capital Stock of such Person; |
(c)
|
the Holders (including Holders of Conru/Mapstead Definitive Securities) shall have received (i) reasonable advance notice of such acquisition including a reasonably detailed description thereof at least 15 days prior to the consummation of such acquisition, (ii) substantially final drafts of the acquisition agreement and related documents at least 5 Business Days prior to the consummation of such acquisition and (iii) on or prior to the date of such acquisition, copies of the final acquisition agreement and related documents certified by an Authorized Officer as being true, correct and complete copies thereof and any other information reasonably requested by the Required Holders; provided, however, no Obligor shall be required to comply with this clause (c) upon the consummation of a Qualified Initial Public Offering or if the value of the acquisition, whether in one transaction or a series of related transactions, and calculated in accordance with clause (a) above does not exceed $500,000; and |
(d)
|
as of the date of consummation of such acquisition and after giving effect to all transactions to occur on such date as part of such acquisition, (i) the representations and warranties set forth in each Note Document shall be true and correct in all material respects on and as of such date or, to the extent such representations and warranties expressly relate to an earlier date, on and as of such earlier date and (ii) no Default or Event of Default shall be continuing. |
|
Minimum EBITDA. We shall not permit our Consolidated EBITDA to be less than the amount specified for the applicable period below: |
Period |
Minimum Consolidated EBITDA |
|||||
---|---|---|---|---|---|---|
Four Fiscal
Quarters Ending: |
||||||
December 31,
2010 |
$ | 85,000,000 | ||||
March 31,
2011 |
$ | 85,000,000 | ||||
June 30, 2011
|
$ | 85,000,000 | ||||
September 30,
2011 |
$ | 85,000,000 |
Period |
Minimum Consolidated EBITDA |
|||||
---|---|---|---|---|---|---|
December 31,
2011 |
$ | 90,000,000 | ||||
March 31,
2012 |
$ | 90,000,000 | ||||
June 30, 2012
|
$ | 90,000,000 | ||||
September 30,
2012 |
$ | 90,000,000 | ||||
December 31,
2012 |
$ | 95,000,000 | ||||
March 31,
2013 |
$ | 95,000,000 | ||||
June 30, 2013
|
$ | 95,000,000 | ||||
September 30,
2013 |
$ | 95,000,000 |
|
Minimum Liquidity. Our unrestricted cash that is on deposit in accounts that are subject to account control agreements in favor of the Trustee shall not be less than $10,000,000 at any time. |
|
Maximum Senior Leverage. Our ratio of outstanding principal under the Senior Secured Notes to Consolidated EBITDA shall not be greater than the amount specified for the applicable period below: |
Four Fiscal Quarters Ending: |
Senior Leverage Ratio |
|||||
---|---|---|---|---|---|---|
December 31,
2010 |
3.5:1.0 | |||||
March 31,
2011 |
3.5:1.0 | |||||
June 30, 2011
|
3.3:1.0 | |||||
September 30,
2011 |
3.3:1.0 | |||||
December 31,
2011 |
3.0:1.0 | |||||
March 31,
2012 |
3.0:1.0 | |||||
June 30, 2012
|
2.8:1.0 | |||||
September 30,
2012 |
2.8:1.0 |
Four Fiscal Quarters Ending: |
Senior Leverage Ratio | |||||
---|---|---|---|---|---|---|
December
31, 2012 |
2.5:1.0 | |||||
March 31,
2013 |
2.5:1.0 | |||||
June 30, 2013
|
2.2:1.0 | |||||
September 30,
2013 |
2.2:1.0 |
|
Maximum Total Leverage. Our ratio of total indebtedness to Consolidated EBITDA shall not be greater than the amount specified for the applicable period below: |
Four Fiscal Quarters Ending: |
Total Leverage Ratio |
|||||
---|---|---|---|---|---|---|
December 31,
2010 |
6.5:1.0 | |||||
March 31,
2011 |
6.5:1.0 | |||||
June 30, 2011
|
6.5:1.0 | |||||
September 30,
2011 |
6.5:1.0 | |||||
December 31,
2011 |
6.1:1.0 | |||||
March 31,
2012 |
6.1:1.0 | |||||
June 30, 2012
|
6.1:1.0 | |||||
September 30,
2012 |
6.1:1.0 | |||||
December 31,
2012 |
5.7:1.0 | |||||
March 31,
2013 |
5.7:1.0 | |||||
June 30, 2013
|
5.7:1.0 | |||||
September 30,
2013 |
5.7:1.0 |
|
Minimum Coverage Ratio. We shall not permit our ratio of Consolidated EBITDA to Annualized Consolidated Interest Expense to be less than the amount specified for the applicable period below: |
Period |
Consolidated Coverage Ratio |
|||||
---|---|---|---|---|---|---|
Four Fiscal
Quarters Ending: |
||||||
December 31,
2010 |
1.9:1.0 | |||||
March 31,
2011 |
1.9:1.0 | |||||
June 30, 2011
|
2.0:1.0 | |||||
September 30,
2011 |
2.0:1.0 | |||||
December 31,
2011 |
2.2:1.0 | |||||
March 31,
2012 |
2.2:1.0 | |||||
June 30, 2012
|
2.3:1.0 | |||||
September 30,
2012 |
2.3:1.0 | |||||
December 31,
2012 |
2.7:1.0 | |||||
March 31,
2013 |
2.7:1.0 | |||||
June 30, 2013
|
2.9:1.0 | |||||
September 30,
2013 |
2.9:1.0 |
|
Maximum Operating Lease Obligations. Our operating lease obligations shall not, in the aggregate, exceed $4,000,000 annually. |
|
Maximum Capitalized Lease Obligations. We shall not incur new capitalized lease obligations that, in the aggregate, exceed $800,000 annually; provided, however the amortization of the capitalized lease obligations shall count against the $4,000,000 basket for operating lease obligations. |
|
Limitations on Loans, Advances, Capital Expenditures and Investments. None of us shall make any loan, advance, guarantee, other extension of credit, capital contribution or investment, except for certain specified exceptions, including, without limitation, (1) listed existing investments, (2) loans and advances |
in the ordinary course of business by any Issuer to any wholly owned subsidiary and by any such subsidiary to any Issuer, (3) any acquisition not exceeding $20,000,000 and otherwise satisfying specified conditions, and (4) specified permitted investments, including, without limitation, investment in any Issuer or a wholly owned subsidiary of any Issuer, aggregate investments in any Person not exceeding $1,000,000 and investments in foreign subsidiaries up to $100,000 in the aggregate. |
|
Limitations on Indebtedness and Liens. None of us shall create, assume, guarantee or allow to exist any lien or indebtedness, except for Permitted Liens and Permitted Indebtedness, including, without limitation, listed existing indebtedness and liens, hedging agreements for up to $5,000,000, liens imposed by law in the ordinary course of business and purchase money liens. |
|
Limitations on Dividends and other Restricted Payments. None of us shall make any of various specified restricted payments, including, without limitation, dividends or other distributions, redemptions or sinking fund payments, compensation to any affiliate or employee, and payments or prepayments on subordinated debt, all subject to certain described exceptions, including, without limitation, in-kind interest payments on the Non-Cash Pay Notes and certain specified payments on the Cash Pay Notes. |
|
Limitations on Transactions with Affiliates. None of us shall enter into any transaction with or for the benefit of any affiliate, except for certain specified transactions, including, without limitation, those in the ordinary course of business in a manner and to an extent consistent with past practice and necessary or desirable for the prudent operation of our business, for fair consideration and on terms no less favorable than would be obtainable in a comparable arms length transaction with a non-affiliated Person. |
|
Limitations on Sale-Leaseback Transactions. None of us shall incur any obligations as lessee in connection with any sale and leaseback transaction. |
|
Limitations on Consolidations, Mergers, Acquisitions and Dispositions of Assets. None of us shall liquidate or dissolve, or merge or consolidate with any Person, or conduct any sale with respect to our business, property or assets, or purchase or otherwise acquire the assets of any Person, except for (1) assets acquired in the ordinary course of business, (2) mergers and consolidations between FFN and its wholly owned subsidiaries satisfying certain conditions, (3) specified permitted acquisitions, (4) dispositions of obsolete or worn-out equipment in the ordinary course of business, and (5) liquidation or dissolution of any subsidiary that has no material assets or liabilities. |
|
Reporting requirements. The Issuers are required to file with the Securities and Exchange Commission or make publicly available all information required under Rule 144(c) of the Securities Act of 1933 and comply with Section 314 of the Trust Indenture Act of 1939. In addition, we are required to provide the Trustee and the holders of the New Notes with (1) periodic compliance certificates, (2) notice of any change of name, structure or jurisdiction of organization for any of us, (3) notice of default, material adverse change or material action, suit or proceeding, (4) copies of all information which any of us provides to holders of its debt or securities or to any securities exchange, and (5) notice of any material development with respect to value added tax liability. |
|
restricting dividends on the common stock; |
|
diluting the voting power of the common stock; |
|
impairing the liquidation rights of the common stock; or |
|
delaying or preventing a change in control of us without further action by the stockholders. |
|
acquisition of us by means of a tender offer; |
|
acquisition of us by means of a proxy contest or otherwise; or |
|
removal of our incumbent officers and directors. |
FriendFinder
Networks Inc. and Subsidiaries |
||||||
Unaudited
Financial Statements as of September 30, 2011 and the Nine Months Ended September 30, 2011 and 2010 |
||||||
Consolidated
Balance Sheets as of September 30, 2011 and December 31, 2010 (Audited) |
F-2 | |||||
Consolidated
Statements of Operations for the Nine Months Ended September 30, 2011 and 2010 |
F-3 | |||||
Consolidated
Statement of Changes in Stockholders Deficiency for the Nine Months Ended September 30, 2011 |
F-4 | |||||
Consolidated
Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010 |
F-5 | |||||
Notes to
Consolidated Financial Statements |
F-6 | |||||
FriendFinder
Networks Inc. and Subsidiaries |
||||||
Audited
Financial Statements as of December 31, 2010 and 2009 and the Three Years ended December 31, 2010, 2009 and 2008 |
||||||
Report of
Independent Registered Public Accounting Firm |
F-25 | |||||
Consolidated
Balance Sheets as of December 31, 2010 and 2009 |
F-26 | |||||
Consolidated
Statements of Operations for the years ended December 31, 2010, 2009 and 2008 |
F-27 | |||||
Consolidated
Statements of Changes in Redeemable Preferred Stock and Stockholders Deficiency |
F-28 | |||||
Consolidated
Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008 |
F-29 | |||||
Notes to
Consolidated Financial Statements |
F-31 |
September 30, 2011 |
December 31, 2010 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
(unaudited) | ||||||||||
ASSETS |
||||||||||
Current
assets: |
||||||||||
Cash
|
$ | 16,470 | $ | 34,585 | ||||||
Restricted
cash |
11,734 | 7,385 | ||||||||
Accounts
receivable, less allowance for doubtful accounts of $2,042 and $2,236, respectively |
9,893 | 9,886 | ||||||||
Inventories
|
793 | 1,028 | ||||||||
Prepaid
expenses |
5,417 | 4,534 | ||||||||
Deferred tax
asset |
6,998 | 5,522 | ||||||||
Total current
assets |
51,305 | 62,940 | ||||||||
Film costs,
net |
4,162 | 4,312 | ||||||||
Property and
equipment, net |
7,805 | 6,666 | ||||||||
Goodwill
|
332,709 | 326,540 | ||||||||
Domain names
|
56,089 | 55,890 | ||||||||
Trademarks
|
9,563 | 9,213 | ||||||||
Other
intangible assets, net |
20,879 | 29,134 | ||||||||
Unamortized
debt costs |
13,645 | 22,336 | ||||||||
Deferred
offering costs |
| 13,267 | ||||||||
Other assets
|
2,676 | 2,519 | ||||||||
$ | 498,833 | $ | 532,817 | |||||||
LIABILITIES |
||||||||||
Current
liabilities: |
||||||||||
Current
installment of long-term debt, net of unamortized discount of $295 and $744, respectively |
$ | 7,976 | $ | 15,009 | ||||||
Accounts
payable |
9,030 | 9,481 | ||||||||
Accrued
expenses and other liabilities |
71,200 | 65,420 | ||||||||
Deferred
revenue |
44,285 | 48,302 | ||||||||
Total current
liabilities |
132,491 | 138,212 | ||||||||
Deferred tax
liability |
31,870 | 30,275 | ||||||||
Long-term
debt, net of unamortized discount of $37,342 and $31,935, respectively |
453,449 | 510,551 | ||||||||
Liability
related to warrants |
| 3,559 | ||||||||
Total
liabilities |
617,810 | 682,597 | ||||||||
Contingencies
(Note 16) |
||||||||||
STOCKHOLDERS DEFICIENCY |
||||||||||
Preferred
stock, $0.001 par value authorized, 22,500,000 shares; issued and outstanding no shares in 2011 and 10,211,556 shares in 2010, |
||||||||||
Series A
Convertible Preferred Stock, $0.001 per share authorized 2,500,000 shares; issued and outstanding, 0 in 2011, 1,766,703 shares in 2010 (liquidation preference $21,000) |
| 2 | ||||||||
Series B
Convertible Preferred Stock, $0.001 per share authorized 10,000,000 shares; issued and outstanding, 0 in 2011, 8,444,853 shares in 2010 (liquidation preference $5,000) |
| 8 | ||||||||
Common stock,
$0.001 par value authorized 125,000,000 shares in 2011 and 2010 |
||||||||||
Common stock
voting authorized 112,500,000 shares, issued and outstanding 31,186,679 shares in 2011 and 6,517,746 shares in 2010 |
31 | 6 | ||||||||
Series B
common stock non-voting authorized 12,500,000 shares; issued and outstanding 32,965 shares in 2011 and 1,839,825 shares in 2010 |
| 2 | ||||||||
Capital in
excess of par value |
132,551 | 80,823 | ||||||||
Accumulated
deficit |
(251,559 | ) | (230,621 | ) | ||||||
Total
stockholders deficiency |
(118,977 | ) | (149,780 | ) | ||||||
$ | 498,833 | $ | 532,817 |
Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 |
||||||||||
Net
revenue |
|||||||||||
Service
|
$ | 234,918 | $ | 243,447 | |||||||
Product
|
14,709 | 14,043 | |||||||||
Total
|
249,627 | 257,490 | |||||||||
Cost of
revenue |
|||||||||||
Service
|
68,547 | 75,568 | |||||||||
Product
|
11,259 | 9,222 | |||||||||
Total
|
79,806 | 84,790 | |||||||||
Gross profit
|
169,821 | 172,700 | |||||||||
Operating
expenses: |
|||||||||||
Product
development |
12,080 | 9,304 | |||||||||
Selling and
marketing |
22,679 | 30,589 | |||||||||
General and
administrative |
67,507 | 60,155 | |||||||||
Amortization
of acquired intangibles and software |
11,906 | 18,793 | |||||||||
Depreciation
and other amortization |
3,268 | 3,556 | |||||||||
Total
operating expenses |
117,440 | 122,397 | |||||||||
Income from
operations |
52,381 | 50,303 | |||||||||
Interest
expense |
(65,097 | ) | (69,128 | ) | |||||||
Interest
related to VAT liability not charged to customers |
(1,410 | ) | (1,742 | ) | |||||||
Foreign
exchange gain (loss), principally related to VAT liability not charged to customers |
(1,521 | ) | 436 | ||||||||
(Loss)/gain
on liability related to warrants |
391 | 427 | |||||||||
Loss on
extinguishment of debt |
(7,312 | ) | | ||||||||
Other
non-operating income (expense) net |
(3,912 | ) | 5 | ||||||||
Loss before
income tax (benefit) |
(26,480 | ) | (19,699 | ) | |||||||
Income tax
(benefit) |
$ | (5,542 | ) | $ | (219 | ) | |||||
Net
loss |
$ | (20,938 | ) | $ | (19,480 | ) | |||||
Net loss
per common share basic and diluted |
$ | (1.02 | ) | $ | (1.42 | ) | |||||
Weighted
average shares outstanding basic and diluted |
20,505 | 13,735 |
Preferred Stock |
Common Stock |
|||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Series A Convertible |
Series B Convertible |
Voting |
Series B Non-Voting |
|||||||||||||||||||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Capital in Excess of Par Value |
Accumulated Deficit |
Total |
||||||||||||||||||||||||||||||||||||
Balance at
December 31, 2010 |
1,766,703 | $ | 2 | 8,444,853 | $ | 8 | 6,517,746 | $ | 6 | 1,839,825 | $ | 2 | $ | 80,823 | $ | (230,621 | ) | $ | (149,780 | ) | ||||||||||||||||||||||||||
Conversion of
Series A convertible preferred stock into common stock at ratio of 1:13 to 1:00 |
(1,766,703 | ) | (2 | ) | 2,000,452 | 2 | ||||||||||||||||||||||||||||||||||||||||
Conversion of
Series B convertible preferred stock into common stock |
(8,444,853 | ) | (8 | ) | 8,444,853 | 8 | ||||||||||||||||||||||||||||||||||||||||
Exchange of
Series B common stock into common stock |
1,806,860 | 2 | (1,806,860 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||||||||
Exercise of
common stock purchase warrants |
5,560,672 | 6 | (6 | ) | ||||||||||||||||||||||||||||||||||||||||||
Issuance of
common stock in initial public offering |
5,000,000 | 5 | 49,995 | 50,000 | ||||||||||||||||||||||||||||||||||||||||||
Costs related
to initial public offering |
(19,992 | ) | (19,992 | ) | ||||||||||||||||||||||||||||||||||||||||||
Beneficial
conversion feature on Non-Cash Pay Second Lien Notes recorded in connection with initial public offering net of $5.7 million of related deferred
taxes |
8,490 | 8,490 | ||||||||||||||||||||||||||||||||||||||||||||
Reclassification of warrant liability due to exercise of stock warrants |
174,246 | 3,168 | 3,168 | |||||||||||||||||||||||||||||||||||||||||||
Stock option
compensation |
2,554 | 2,554 | ||||||||||||||||||||||||||||||||||||||||||||
Common stock
issued in acquisition of PerfectMatch.com |
126,295 | 500 | 500 | |||||||||||||||||||||||||||||||||||||||||||
Common stock
and warrants issued in acquisition of JigoCity |
1,555,555 | 2 | 7,019 | 7,021 | ||||||||||||||||||||||||||||||||||||||||||
Net Loss
|
(20,938 | ) | (20,938 | ) | ||||||||||||||||||||||||||||||||||||||||||
Balance at
September 30, 2011 |
0 | $ | 0 | 0 | $ | 0 | 31,186,679 | $ | 31 | 32,965 | $ | 0 | $ | 132,551 | $ | (251,559 | ) | $ | (118,977 | ) |
Nine Months Ended September 30, |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 |
|||||||||||||
Cash flows
from operating activities |
||||||||||||||
Net
loss |
$ | (20,938 | ) | $ | (19,480 | ) | ||||||||
Adjustment to
reconcile net loss to net cash provided by operating activities: |
||||||||||||||
Amortization
of acquired intangibles and software |
11,906 | 18,793 | ||||||||||||
Depreciation
and other amortization |
3,268 | 3,556 | ||||||||||||
Amortization
of film costs |
2,141 | 2,774 | ||||||||||||
Deferred
income tax benefit |
(5,542 | ) | (219 | ) | ||||||||||
Non-cash
interest, including amortization of discount and debt costs |
35,452 | 26,337 | ||||||||||||
Provision for
doubtful accounts |
105 | 532 | ||||||||||||
Gain on
warrant liability |
(391 | ) | (427 | ) | ||||||||||
Loss on
extinguishment of debt |
7,312 | | ||||||||||||
Stock option
compensation expense |
2,554 | | ||||||||||||
Other
|
590 | 391 | ||||||||||||
Changes in
operating assets and liabilities: |
||||||||||||||
Restricted
cash |
(4,218 | ) | (921 | ) | ||||||||||
Accounts
receivable |
(112 | ) | 1,305 | |||||||||||
Inventories
|
235 | 97 | ||||||||||||
Prepaid
expenses |
(310 | ) | 2,842 | |||||||||||
Film costs
|
(1,991 | ) | (2,147 | ) | ||||||||||
Deferred
offering costs |
| (3,258 | ) | |||||||||||
Other assets
|
| (1,434 | ) | |||||||||||
Accounts
payable |
(1,465 | ) | (3,151 | ) | ||||||||||
Accrued
expenses and other liabilities |
(2,972 | ) | (958 | ) | ||||||||||
Deferred
revenue |
(4,017 | ) | 4,045 | |||||||||||
Net cash
provided by operating activities |
21,607 | 28,677 | ||||||||||||
Cash flows
from investing activities: |
||||||||||||||
Cash received
from escrow in connection with acquisition |
| 2,499 | ||||||||||||
Purchases of
property and equipment |
(4,472 | ) | (2,659 | ) | ||||||||||
Cash paid for
acquisition |
(2,003 | ) | | |||||||||||
Other
|
(49 | ) | (391 | ) | ||||||||||
Net cash
(used in) investing activities |
(6,524 | ) | (551 | ) | ||||||||||
Cash flows
from financing activities: |
||||||||||||||
Gross
proceeds from sale of common stock voting from initial public offering |
50,000 | | ||||||||||||
Payment of
underwriter discount and other offering costs in connection with initial public offering |
(6,724 | ) | | |||||||||||
Recovery of
debt issuance costs |
296 | | ||||||||||||
Repayment of
long-term debt |
(76,770 | ) | (21,921 | ) | ||||||||||
Net cash
(used in) financing activities |
(33,198 | ) | (21,921 | ) | ||||||||||
Net
(decrease) increase in cash |
(18,115 | ) | 6,205 | |||||||||||
Cash at
beginning of period |
34,585 | 22,600 | ||||||||||||
Cash at
end of period |
$ | 16,470 | $ | 28,805 | ||||||||||
Supplemental disclosures of cash flow information: |
||||||||||||||
Cash Paid
for: |
||||||||||||||
Interest paid
|
29,030 | 31,493 | ||||||||||||
Estimated
income taxes paid |
30 | | ||||||||||||
Non-Cash
Investing and Financing Activities: |
||||||||||||||
Accrued fee
in connection with debt restructuring |
| 12,436 | ||||||||||||
Recording of
beneficial conversion feature on Non-Cash Pay Second Lien Notes in connection with initial public offering, net of $5,660 of related deferred taxes |
8,490 | | ||||||||||||
Deferred
offering costs written off to capital in excess of par value |
13,267 | | ||||||||||||
Conversion of
Series A and B convertible preferred stock and series B common stock to common stock |
12 | | ||||||||||||
Common Stock
and warrants issued and contingent consideration liability in connection with acquisitions |
8,000 | |
Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 |
||||||||||
Common Stock
|
16,726 | 6,518 | |||||||||
Series B
common stock |
942 | 1,840 | |||||||||
Common stock
purchase warrants |
2,837 | 5,377 | |||||||||
20,505 | 13,735 |
Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 |
||||||||||
Series A
Convertible Preferred Stock |
| 2,000 | |||||||||
Series B
Convertible Preferred Stock |
| 8,445 | |||||||||
Warrants
|
6,437 | 502 | |||||||||
Convertible
Non Cash pay Second Lien Notes |
8,311 | | |||||||||
Employee
stock options |
608 | | |||||||||
Total common
shares issuable |
15,356 | 10,947 |
Common stock
|
$ | 4,460,000 | ||||
Warrants
|
2,560,000 | |||||
Acquisition
related contingent consideration |
480,000 | |||||
$ | 7,500,000 |
Current assets
|
$ | 752 | ||||
Identifiable
intangible assets |
3,336 | |||||
Goodwill
|
4,638 | |||||
Other
non-current assets |
609 | |||||
Total assets
acquired |
9,335 | |||||
Current
liabilities |
1,835 | |||||
Net assets
acquired |
$ | 7,500 |
Nine Months Ended September 30, 2011 |
||||||
---|---|---|---|---|---|---|
Net revenue
|
$ | 250,129 | ||||
Net loss
|
(28,936 | ) | ||||
Net loss per
common share basic and diluted |
(1.31 | ) | ||||
Weighted average
shares outstanding |
22,060 |
September 30, 2011 |
December 31, 2010 |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Principal |
Unamortized Discount |
Principal |
Unamortized Discount |
||||||||||||||||
Debt issued
by FriendFinder and INI on October 27, 2010(a) |
|||||||||||||||||||
14% New First
Lien Notes due 2013(b)(e) |
$ | 235,332 | $ | 6,484 | $ | 305,000 | $ | 10,974 | |||||||||||
14% Cash Pay
Second Lien Notes due 2013(c)(e) |
10,631 | 159 | 13,778 | 262 | |||||||||||||||
11.5%
Non-Cash Pay Second Lien Notes, due 2014(d)(e) |
250,849 | 30,755 | 237,211 | 20,986 | |||||||||||||||
Other
(f) |
2,250 | 239 | 2,250 | 457 | |||||||||||||||
$ | 499,062 | $ | 37,637 | $ | 558,239 | $ | 32,679 | ||||||||||||
Less:
unamortized discount |
(37,637 | ) | (32,679 | ) | |||||||||||||||
Less: current
installment of long-term debt, net of unamortized discount $295 and $744, respectively |
(7,976 | ) | (15,009 | ) | |||||||||||||||
$ | 453,449 | $ | 510,551 |
(a) |
On October 27, 2010, $305,000,000 principal amount of 14% Senior Secured Notes due 2013 were co-issued by FriendFinder and its wholly-owned subsidiary Interactive Network, Inc (INI), the parent of Various, (the New First Lien Notes) of which (a) $200,185,000 was exchanged for $130,485,000 outstanding principal amount of the former First Lien Notes, $49,361,000 outstanding principal amount of the former Second Lien Notes and $14,551,000 outstanding principal amount of the former Senior Secured Notes, (b) $91,400,000 was issued for cash proceeds of $89,572,000 before payment of related fees and expenses of $5,834,000 and (c) $13,415,000 was issued to pay commitment fees to the holders of the former First and Second Lien Notes. Cash of $86,237,000 was used to redeem $36,608,000 outstanding principal amount of the former First Lien Notes at 102% of principal, $30,639,000 outstanding principal amount of former Second Lien Notes (representing the remaining outstanding principal amounts of First and Second Lien Notes) and $18,258,000 outstanding principal amount of former Senior Secured Notes. Cash was also used to pay $4,132,000 of accrued interest on the exchanged and redeemed notes, an $825,000 redemption premium on certain exchanged First Lien Notes and $435,000 in commitment fees to certain noteholders. |
(b) |
The New First Lien Notes, approximately $77,158,000 principal amount of which are held by a more than 10% stockholder at September 30, 2011, were issued with an original issue discount of $6,100,000, or 2.0%. The notes mature on September 30, 2013 and accrue interest at a rate per annum equal to 14.0%. Interest on the notes is payable quarterly on March 31, June 30, September 30 and December 31 of each year. Principal on the New First Lien Notes is payable quarterly to the extent of 75% of Excess Cash Flow, as defined, at 102% of principal, subject to the pro-rata sharing with the Cash Pay Second Lien Notes. Principal of $23.4 million was paid on the New First Lien Notes from excess cash flow in the quarters prior to our IPO in May 2011, of which $14.1 million was paid in the quarter ended March 31, 2011 and $9.3 million was paid in May 2011. An additional $8.5 and $6.9 million of principal was redeemed in August and November 2011 with excess cash flow for the quarters ended June 30, and September 30, 2011 respectively. The New First Lien Notes are guaranteed by domestic subsidiaries of FriendFinder and INI and are collateralized by a first-priority lien on all of the Companys assets as well as a pledge of stock of subsidiaries. The New First Lien Notes are redeemable prior to maturity at the option of the Company, in whole but not in part, at 110% of principal, plus accrued and unpaid interest. Noteholders have the option of requiring the Company to repay the New First Lien Notes and Cash Pay Second Lien Notes in full upon a Change of Control, as defined, at 110% of principal. The Company shall also repay the New First Lien Notes and, in certain circumstances, the Cash Pay Second Lien Notes, with proceeds received from any debt or equity financing (including a secondary offering) and asset sales of more than $25 million at 110% of principal, and with proceeds from other asset sales, insurance claims, condemnation and other extraordinary cash receipts at principal, subject to certain exceptions. |
(c) |
The Cash Pay Second Lien Notes, all of which were issued to entities controlled by stockholders who are also officers and directors, were issued with an original issue discount of $276,000, or 2%, mature on September 30, 2013 and have identical terms to those of the New First Lien Notes, except as to matters regarding collateral, subordination, enforcement and voting. |
(d) |
The Non-Cash Pay Second Lien Notes, approximately $167,279,000 principal amount of which are held by more than 10% stockholders and affiliates, including $1,869,000 to entities controlled by certain officers and directors at September 30, 2011, mature on April 30, 2014 and bear interest at 11.5%, payable semi-annually on June 30 and December 31, which may be paid in additional notes at the Companys option. While the New First Lien Notes are in place, interest must be paid with additional notes. During 2010 and 2011, interest amounting to $4,752,000 and $13,640,000, respectively, was paid through the issuance of additional Non-Cash Pay Second Lien Notes. The Non-Cash Pay Second Lien Notes are guaranteed by the domestic subsidiaries of FriendFinder and INI and collateralized by a second priority lien on all of the Companys assets and a pledge of the stock of subsidiaries; however, such security interest is subordinate to the prior payment of the New First Lien Notes. The Non-Cash Pay Second Lien Notes are redeemable, at the option of the Company, in whole but not in part, at 100% of principal plus accrued and unpaid interest. Upon the payment in full of the New First Lien Notes, principal on the Non-Cash Pay Second Lien Notes is payable quarterly to the extent of 75% of Excess Cash Flow, as defined, at 102% of principal subject to pro-rata sharing with the Cash Pay Second Lien Notes. Upon an IPO, if the New First Lien Notes are paid in full, the net proceeds must be used to redeem the Non-Cash Pay Second Lien Notes and Cash Pay Second Lien Notes on a pro-rata basis at 110% of principal plus accrued and unpaid interest. In addition, noteholders have the option of requiring the Company to repay the Non-Cash Pay Second Lien Notes in full upon a Change of Control, as defined, at 110% of principal plus accrued and unpaid interest. If the New First Lien Notes are paid in full, the Company shall repay the Non-Cash Pay Second Lien Notes and Cash Pay Second Lien Notes on a pro-rata basis with proceeds received from any debt or equity financing (including a secondary offering), and asset sales of more than $25 million at 110% of principal plus accrued and unpaid interest and with proceeds of other asset sales, insurance claims, condemnation and other extraordinary cash receipts at principal, subject to certain exceptions. As a result of the consummation of the IPO in May 2011, the Non-Cash Pay Second Lien Notes became convertible into 8,310,763 shares of common stock at an IPO price of $10.00 per share. As a result thereof, a beneficial conversion feature of $14,150,000 related to the Non-Cash Pay Second Lien Notes was recognized and recorded as a discount on the notes with a corresponding increase to additional paid-in capital. In addition, a related deferred tax liability of approximately $5.7 million resulting from the difference between the carrying value of the notes and their tax basis attributable to recording the note discount was recognized with a corresponding reduction to additional paid-in capital. The beneficial conversion feature was measured based on the difference, on the deemed issuance date of the notes, between (a) the adjusted conversion price of the notes, calculated based on the fair value of the notes (which was less than stated principal) and (b) the estimated fair value of the Companys common stock, multiplied by the 8,310,763 shares obtainable on conversion. |
(e) |
The New First Lien Notes, the Cash Pay Second Lien Notes and Non-Cash Pay Second Lien Notes (1) require the Company to maintain minimum specified levels of EBITDA and liquidity and financial ratios, including debt and coverage ratios, all as defined; (2) provides for certain limitations including limits on indebtedness, lease obligations, VAT payments and investments; and (3) prohibits dividends and other payments with respect to the Companys equity securities. |
(f) |
In connection with the restructuring of Subordinated Convertible Notes issued in connection with the acquisition of Various, the Company agreed to pay $3.2 million of fees to the former owners of Various of which $1 million is payable in each of 2010 through 2012 and $250,000 is payable in the first quarter of 2013. The obligation was recorded at a present value of $2.3 million using a discount rate of 15%. |
Twelve months
ending September 30, |
||||||
2012
|
$ | 8,271 | ||||
2013
|
239,942 | |||||
2014
|
250,849 | |||||
Total
|
$ | 499,062 |
Expiration Date(1) |
Exercise Price |
Number of Shares |
Number of Shares as Adjusted Based on IPO(2) (3) |
Number of Shares Issued on Exercise |
Shares Issuable |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
August 2015
|
$ | 6.20 | 476,573 | 457,843 | 457,843 | | ||||||||||||||||
August 2015
|
$ | 10.25 | 25,090 | 24,104 | 24,104 | | ||||||||||||||||
August 2015
|
$ | 0.0002 | 243,287 | 233,726 | 204,135 | 29,591 | ||||||||||||||||
August 2016
|
$ | 0.0002 | 441,474 | 424,120 | 370,427 | 53,693 | ||||||||||||||||
December 2017
|
$ | 0.0002 | 4,692,996 | 5,188,509 | 4,986,172 | , | 202,337 | |||||||||||||||
December
2021(4) |
$ | 5.00-18.00 | 6,436,851 | | | 6,436,851 | ||||||||||||||||
12,316,271 | 6,328,302 | 6,042,681 | 6,722,472 |
(1) |
Except for warrants to purchase 1,373,859 shares of common stock at $0.0002 per share, which were amended on October 8, 2009, all outstanding warrants would have terminated if not exercised concurrently with the consummation of the IPO. |
(2) |
The number of shares of common stock for which each warrant was exercisable, except for warrants exercisable at $10.25, were decreased immediately prior to the closing of the IPO as the Company has issued prior to such IPO fewer than 1,343,997 shares or options pursuant to an equity incentive or benefit plan. The adjustment provision for warrants exercisable at $10.25 was triggered as the Company had issued fewer than 588,890 shares or options pursuant to an equity incentive or benefit plan prior to the closing of the IPO. |
(3) |
With respect to warrants to acquire 2,441,989 common shares at $0.0002 per share, in order to maintain the warrant holders percentage of fully diluted equity, the number of shares of common stock for which such warrants were exercisable was increased by 680,034 immediately prior to the closing of the IPO based on the number of shares of common stock into which the Non-Cash Pay Second Lien Notes which were exchanged for Subordinated Convertible Notes issued to selling stockholders in the acquisition of Various, were convertible based on the IPO price. |
(4) |
Warrants were issued in connection with the acquisition of JigoCity. (see Note 7) |
For the Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 |
||||||||||
Current: |
|||||||||||
Federal
|
$ | | $ | 73 | |||||||
State
|
| 285 | |||||||||
$ | | $ | 358 | ||||||||
Deferred: |
|||||||||||
Federal
|
$ | (4,849 | ) | $ | (505 | ) | |||||
State
|
(693 | ) | (72 | ) | |||||||
(5,542 | ) | (577 | ) | ||||||||
Total tax
(benefit) |
$ | (5,542 | ) | $ | (219 | ) |
September 30, 2011 |
December 31, 2010 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Assets: |
||||||||||
Internet
|
$ | 475,461 | $ | 506,297 | ||||||
Entertainment
|
19,115 | 17,739 | ||||||||
Unallocated
corporate |
4,257 | 8,781 | ||||||||
Total
|
$ | 498,833 | $ | 532,817 |
For the Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 |
||||||||||
Net revenue
from external customers: |
|||||||||||
Internet
|
$ | 233,319 | $ | 241,476 | |||||||
Entertainment
|
16,308 | 16,014 | |||||||||
Total
|
$ | 249,627 | $ | 257,490 | |||||||
Income from
operations: |
|||||||||||
Internet
|
$ | 59,619 | $ | 52,149 | |||||||
Entertainment
|
(227 | ) | 2,234 | ||||||||
Total segment
income |
$ | 59,392 | $ | 54,383 | |||||||
Unallocated
corporate |
(7,011 | ) | (4,080 | ) | |||||||
Total
|
$ | 52,381 | $ | 50,303 |
Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 |
||||||||||
Internet: |
|||||||||||
Subscription
based service |
$ | 172,511 | $ | 185,099 | |||||||
Pay by usage
service |
60,660 | 56,280 | |||||||||
Social
Commerce |
146 | | |||||||||
Advertising |
2 | 97 | |||||||||
233,319 | 241,476 | ||||||||||
Entertainment |
|||||||||||
Magazine |
7,439 | 8,261 | |||||||||
Video
entertainment |
7,223 | 5,782 | |||||||||
Licensing |
1,646 | 1,971 | |||||||||
16,308 | 16,014 | ||||||||||
Total
revenue |
$ | 249,627 | $ | 257,490 |
Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 |
||||||||||
Net
revenue: |
|||||||||||
United States
|
$ | 136,874 | $ | 139,412 | |||||||
Europe
|
70,538 | 79,945 | |||||||||
Canada
|
14,042 | 13,309 | |||||||||
Other
|
28,173 | 24,824 | |||||||||
Total
|
$ | 249,627 | $ | 257,490 |
(a) |
On December 28, 2007, Broadstream Capital Partners, Inc. (Broadstream) filed a lawsuit against the Company in the State Superior Court of California, County of Los Angeles, Central District, and the Company subsequently removed the case to the Federal District Court for the Central District of California. The complaint alleged breach of contract, breach of covenant of good faith and fair dealing, breach of fiduciary duty and constructive fraud arising out of a document titled Non-Disclosure Agreement. The complaint alleged, among other things, that Broadstream entered into a Non-Disclosure Agreement with the Company that required Broadstreams prior written consent for the Company to knowingly acquire Various or any of its subsidiaries and that such consent was not obtained. On April 7, 2008, Broadstream filed its First Amended Complaint, which added a new cause of action for intentional interference with prospective economic advantage. On February 20, 2009, Broadstream filed its Third Amended Complaint, which dismissed the allegations of breach of fiduciary duty and constructive fraud. The complaint sought damages which plaintiff alleges to be in excess of $20 million, plus interest, costs and punitive damages. Broadstream later asserted up to $557 million in damages plus punitive damages. On July 20, 2009, the Company entered into an agreement with Broadstream under which, without admitting liability, the Company agreed to pay Broadstream |
(b) |
On December 23, 2005, Robert Guccione, our former president, filed an action against the Company and some of its officers, among other defendants, in New York State Court for breach of contract, fraud, unjust enrichment, promissory estoppel, failure to pay severance and conspiracy to defraud. The amount of damages requested in the complaint against the Company is approximately $9.0 million and against the officers is in excess of $10.0 million. Some of the counts in the complaint also demand an unspecified amount of damages. Guccione filed an amended complaint on June 5, 2007 to include additional claims relating to ownership of certain United Kingdom, Jersey and Guernsey trademarks and added as a party Penthouse Publications Limited, an entity with no current affiliation with the Company, as party plaintiff. Guccione agreed to dismiss the count for conspiracy to defraud only. Guccione filed a Second Amended Complaint on December 14, 2007 adding General Media International, Inc. (an entity with no current affiliation with the Company) as party plaintiff and a new claim for inducement to breach of contract. The Company filed its motion to dismiss the Second Amended Complaint on January 31, 2008, which was granted in part and denied in part. The court dismissed the claims for unjust enrichment and promissory estoppel. The Company filed its Answer and Affirmative Defenses to the Second Amended Complaint on June 25, 2009. On August 14, 2008, Guccione filed a voluntary petition for Chapter 7 Bankruptcy. Guccione filed a dismissal of the bankruptcy proceedings on November 4, 2009. The Court dismissed the bankruptcy action on November 9, 2009. The settlement agreement between Guccione and his judgment creditors assigns all rights to the New York state court action to his judgment creditors. On January 8, 2010, the Company filed an Amended Answer with counterclaims against Guccione and Penthouse Publications Limited for conversion, breach of fiduciary duty, declaratory relief and indemnification. No specific amount of damages has been requested in the counterclaims. On January 27, 2010, Plaintiffs filed a Reply to the Companys counterclaims. In January and February 2010, certain defendants filed Answers to Plaintiffs Second Amended Complaint with cross-claims against the Company for contribution and indemnification. No specific amount of damages has been requested. In February |
and March 2010, the Company filed its Answer and Affirmative Defenses to the cross-claims. On October 20, 2010, Guccione passed away. As such, the case is stayed pending substitution of his estate as a party. On November 1,2011, the Court substituted the personal representative of the Estate of Robert Guccione as the Plaintiff in this matter and set a status conference for November 14, 2011. The Company believes it has meritorious defenses to all claims and intends to vigorously defend the lawsuit. |
(c) |
On or about November 27, 2006, a claimant filed a consumer class action arbitration at Judicial Arbitration and Mediation Services, Inc. or JAMS in San Jose, California, alleging a nationwide class action against Various under a variety of legal theories related to, among other things, representations regarding the number of active users on its internet dating websites, causing the appearance of erroneous member profiles, and a failure to adequately remove or account for alleged erroneous member profiles. The claimant is seeking unspecified damages. Various disputes the claims and intends to defend the arbitration vigorously. |
(d) |
On November 28, 2006, Antor Media Corporation (Antor) filed a complaint against FriendFinder, its subsidiary, General Media Communications, Inc. (GMCI), and several non-affiliate media/entertainment defendants in the U.S. District Court for the Eastern District of Texas, Texarkana Division, for infringement of a Patent titled Method and Apparatus for Transmitting Information Recorded on Information Storage Means from a Central Server to Subscribers via a High Data Rate Digital Telecommunications Network. No specific amount of damages has been requested. Injunctive relief is also sought. The Company and its subsidiary filed an Answer, Affirmative Defenses and Counterclaims. The United States Patent and Trademark Office (USPTO) issued a non-final office action rejecting Antors patent claims. Antor filed a response to the office action which added 83 new claims to the original 29 rejected claims. In August 2008, the USPTO issued its final office action sustaining its rejection of the original 29 claims and rejecting the 83 new claims. Antor filed its Petition to Vacate Finality of Office Action on the grounds it introduced new grounds for the rejection. Based on the final office action, the Company, GMCI and all other defendants filed an expedited motion to stay the case. In December 2008, pursuant to an order granting a re-examination proceeding, the USPTO issued a non-final office action again rejecting the original 29 claims and the new 83 claims. In February 2009, Antor filed a response in which it agreed to cancel the 83 new claims previously proposed. On May 11, 2009, the Court entered an Order granting Defendants Motion to Stay as modified. On May 22, 2009, the defendant accepted the terms of the Courts proposed Stipulation regarding the use of prior art at trial and filed their Stipulation. On June 5, 2009, the USPTO issued a Final Office Action rejecting all of the Plaintiffs claims. Plaintiff filed an appeal on July 7, 2009 and an appellate brief on October 8, 2009. On February 18, 2010, the USPTO filed an answer brief. On October 21, 2010, the USPTO Board of Patent Appeals entered an order affirming the rejection of Antors claims. On December 21, 2010, Antor filed a request for rehearing which was denied in March 2011. On May 23, 2011, Antor filed its notice of appeal. On September 28, 2011, Antor filed its appeal brief. The case will remain stayed pending the appeal. |
(e) |
Effective July 1, 2008, Various registered in the European Union and on July 29, 2008, began separately charging VAT to its customers. For periods prior thereto, Various recorded a liability for VAT and related interest and penalties in connection with revenue from internet services derived from its customers in the various European Union countries. Various reduced its VAT liability for periods prior to July 1, 2008 in the countries where the liability was either paid in full or payments were made pursuant to settlement and payment plans or where determinations were made that payments were not due. Various continues to negotiate settlements of the liabilities or challenge the liability related to VAT for periods prior to July 1, 2008 (see Note 8). |
(f) |
On May 19, 2009, representatives for Summit Trading Limited (Summit) sent a letter to the Companys outside legal counsel, alleging that the Company, Interactive Brand Development, Inc., (an owner of the Companys Series B Common Stock) and entities affiliated with two of the Companys principal stockholders defrauded Summit of financial compensation for services provided to the Companys predecessor entity, General Media, Inc. Among the claims, Summit asserted bad faith, breach of contract and fraud by the Companys management and the Company, and claimed that it is owed an equity interest in the Company, |
as well as compensatory, punitive and exemplary damages in excess of $500 million. Management believes that the allegations stated in the letter are vague and lack factual basis and merit. Summit has not taken any legal action against the Company. Should Summit take legal action, the Company would vigorously defend the lawsuit. |
(g) |
On November 16, 2010, Patent Harbor, LLC filed a Complaint for patent infringement against, among others, Penthouse Digital Media Productions Inc. (PDMP), in the United States District Court for the Eastern District of Texas. The Complaint alleges an infringement of a U.S. Patent titled Apparatus and Method for Assembling Content Addressable Video (Licensed Patent). No specific amount of damages has been requested. However, on November 16, 2010, the Company received a settlement demand from plaintiff in the amount of $800,000. Plaintiff later lowered its demand to $500,000 and on July 11, 2011, the Company received a settlement demand from Plaintiff in the amount of $82,500. On January 28, 2011, the Company filed an Answer, Affirmative Defenses and Counterclaims. On February 25, 2011, Plaintiff filed its Answer to the Counterclaims. On July 27, 2011, the Company filed its Amended Answer, Affirmative Defenses and Amended Counterclaims. On August 10, 2011, Plaintiffs filed its Answer to the Amended Counterclaim. On November 3, 2011, the parties entered into a settlement agreement whereby the Company agreed to pay Patent Harbor, LLC a total of $80,000 in three payments. The first payment will be made on or before November 15, 2011 in the amount of $40,000, the second payment will be made on or before December 15, 2011 in the amount of $20,000 and the third and final payment will be made on or before January 17, 2012 in the amount of $20,000. In exchange for the payment, the litigation will be dismissed and the Company will receive a license from Patent Harbor, LLC for use of the Licensed Patent. |
(h) |
On April 13, 2011, Facebook, Inc., or Facebook, filed a complaint against FriendFinder and certain of its subsidiaries in the U.S. District Court for the Northern District of California, alleging trademark infringement with regard to the use of the terms facebook of sex and Facebooks use of the FRIENDFINDER mark. The Complaint contains causes of action for: trademark dilution, false designation of origin, trademark infringement, violation of the Anti-Cybersquating Consumer Protection Act, and for unfair competition. The Complaint also seeks a declaratory judgment that Facebooks use of friend finder is a descriptive fair use that does not infringe Various trademark rights in the FRIENDFINDER mark. No specific amount of damages has been sought. However, the Complaint requests monetary relief, injunctive relief, punitive damages, cancellation of the FRIENDFINDER marks, attorneys fees, other equitable relief, and costs amongst other things. On May 23, 2011, the Company, and its subsidiaries, filed their Answer, Affirmative Defenses and Counterclaims to the Complaint. On June 16, 2011, Facebook filed its Answer and Affirmative Defenses to the Counterclaims. The Company believes that it has meritorious defenses to the claims asserted and intends to vigorously defend this lawsuit and prosecute the Counterclaims against Facebook. A settlement conference was held on November 4, 2011. The parties are currently in the process of negotiating a final settlement agreement. On November 7, 2011, the Court approved the Joint Stipulation for Stay and all deadlines in the litigation are stayed pending the negotiation of the final settlement agreement. Any payment made by the Company as a result of the settlement agreement is not expected to be material. |
(i) |
On November 11, 2011, a putative shareholder class action was filed in the United States District Court for the Southern District of Florida by Greenfield Childrens Partnership, on behalf of investors who purchased the Companys common stock pursuant to the Companys initial public offering, against the Company, Ladenburg Thalmann & Co., Inc. and Imperial Capital LLC, the underwriters in the Companys initial public offering, and the Companys directors and certain of the Companys executive officers. The complaint alleges, among other things, that the Companys initial public offering documents contained certain of the Companys false and misleading statements and seeks an unspecified amount of compensatory damages. The Company believes that it has meritorious defenses to all claims and intend to vigorously defend the lawsuit. |
December 31, |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
|||||||||||||
ASSETS |
||||||||||||||
Current
assets: |
||||||||||||||
Cash
|
$ | 34,585 | $ | 22,600 | ||||||||||
Restricted
cash |
7,385 | 6,295 | ||||||||||||
Accounts
receivable, less allowance for doubtful accounts of $2,236 and $2,152, respectively |
9,886 | 12,142 | ||||||||||||
Inventories
|
1,028 | 1,339 | ||||||||||||
Prepaid
expenses |
4,534 | 7,980 | ||||||||||||
Deferred tax
asset |
5,522 | 11,366 | ||||||||||||
Total current
assets |
62,940 | 61,722 | ||||||||||||
Film costs,
net |
4,312 | 4,526 | ||||||||||||
Property and
equipment, net |
6,666 | 13,812 | ||||||||||||
Goodwill
|
326,540 | 326,540 | ||||||||||||
Domain names
|
55,890 | 55,491 | ||||||||||||
Trademarks
|
9,213 | 13,873 | ||||||||||||
Other
intangible assets, net |
29,134 | 48,183 | ||||||||||||
Deferred debt
costs, net |
22,336 | 12,318 | ||||||||||||
Deferred
offering costs |
13,267 | 9,050 | ||||||||||||
Receivable
from escrow fund |
| 2,679 | ||||||||||||
Other assets
|
2,519 | 3,687 | ||||||||||||
$ | 532,817 | $ | 551,881 | |||||||||||
LIABILITIES |
||||||||||||||
Current
liabilities: |
||||||||||||||
Current
installment of long-term debt, net of unamortized discount of $744 and $1,931, respectively |
15,009 | 56,116 | ||||||||||||
Accounts
payable |
9,481 | 12,612 | ||||||||||||
Accrued
expenses and other liabilities |
65,420 | 69,727 | ||||||||||||
Deferred
revenue |
48,302 | 46,046 | ||||||||||||
Total current
liabilities |
138,212 | 184,501 | ||||||||||||
Deferred tax
liability |
30,275 | 37,397 | ||||||||||||
Long-term
debt, net of unamortized discount of $31,935 and $44,118, respectively |
510,551 | 432,028 | ||||||||||||
Liability
related to warrants |
3,559 | 3,597 | ||||||||||||
Total
liabilities |
682,597 | 657,523 | ||||||||||||
Commitments
and contingencies (Notes P and Q) |
||||||||||||||
REDEEMABLE
PREFERRED STOCK |
||||||||||||||
Series A
Convertible Preferred Stock, $0.001 per share authorized 2,500,000 shares; issued and outstanding 1,766,703 shares in 2009 (at liquidation
preference) |
| 21,000 | ||||||||||||
Series B
Convertible Preferred Stock, $0.001 per share authorized 10,000,000 shares; issued and outstanding 8,444,853 shares in 2009 (at liquidation
preference) |
| 5,000 | ||||||||||||
STOCKHOLDERS DEFICIENCY |
||||||||||||||
Preferred
stock, $0.001 par value authorized 22,500,000 shares; issued and outstanding 10,211,556 shares in 2010 and redeemable shares in 2009, shown
above |
||||||||||||||
Series A
Convertible Preferred Stock $0.001 per share authorized 2,500,000 shares; issued and outstanding 1,766,703 shares in 2010 (liquidation
preference $21,000) |
2 | | ||||||||||||
Series B
Convertible Preferred Stock $0.001 per share authorized 10,000,000 shares; issued and outstanding 8,444,853 shares in 2010 (liquidation
preference $5,000) |
8 | | ||||||||||||
Common stock,
$0.001 par value authorized 125,000,000 shares in 2010 and 2009 |
||||||||||||||
Common stock
voting authorized 112,500,000 shares, issued and outstanding 6,517,746 in 2010 and 2009. |
6 | 6 | ||||||||||||
Series B
common stock non-voting authorized 12,500,000 shares; issued and outstanding 1,839,825 shares in 2010 and 2009 |
2 | 2 | ||||||||||||
Capital in
excess of par value |
80,823 | 55,818 | ||||||||||||
Accumulated
deficit |
(230,621 | ) | (187,468 | ) | ||||||||||
Total
stockholders deficiency |
(149,780 | ) | (131,642 | ) | ||||||||||
$ | 532,817 | $ | 551,881 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Net
revenue |
|||||||||||||||
Service
|
$ | 324,211 | $ | 309,033 | $ | 309,388 | |||||||||
Product
|
21,786 | 18,659 | 21,629 | ||||||||||||
Total
|
345,997 | 327,692 | 331,017 | ||||||||||||
Cost of
revenue |
|||||||||||||||
Service
|
97,959 | 78,627 | 81,815 | ||||||||||||
Product
|
12,531 | 13,070 | 14,699 | ||||||||||||
Total
|
110,490 | 91,697 | 96,514 | ||||||||||||
Gross profit
|
235,507 | 235,995 | 234,503 | ||||||||||||
Operating
expenses: |
|||||||||||||||
Product
development |
12,834 | 13,500 | 14,553 | ||||||||||||
Selling and
marketing |
37,258 | 42,902 | 59,281 | ||||||||||||
General and
administrative |
79,855 | 76,863 | 88,280 | ||||||||||||
Amortization
of acquired intangibles and software |
24,461 | 35,454 | 36,347 | ||||||||||||
Depreciation
and other amortization |
4,704 | 4,881 | 4,502 | ||||||||||||
Impairment of
goodwill |
| | 9,571 | ||||||||||||
Impairment of
other intangible assets |
4,660 | 4,000 | 14,860 | ||||||||||||
Total
operating expenses |
163,772 | 177,600 | 227,394 | ||||||||||||
Income from
operations |
71,735 | 58,395 | 7,109 | ||||||||||||
Interest
expense, net of interest income |
(88,508 | ) | (92,139 | ) | (80,510 | ) | |||||||||
Other finance
expenses |
(4,562 | ) | | | |||||||||||
Interest and
penalties related to VAT liability not charged to customers |
(2,293 | ) | (4,205 | ) | (8,429 | ) | |||||||||
Net loss on
extinguishment and modification of debt |
(7,457 | ) | (7,240 | ) | | ||||||||||
Foreign
exchange gain (loss), principally related to VAT liability not charged to customers |
610 | (5,530 | ) | 15,195 | |||||||||||
Gain on
settlement of VAT liability not charged to customers |
| 232 | 2,690 | ||||||||||||
Gain on
elimination of liability for United Kingdom VAT not charged to customers |
| 1,561 | | ||||||||||||
Gain on
liability related to warrants |
38 | 2,744 | | ||||||||||||
Other
non-operating expenses, net |
(13,202 | ) | (366 | ) | (197 | ) | |||||||||
Loss before
income tax benefit |
(43,639 | ) | (46,548 | ) | (64,142 | ) | |||||||||
Income tax
benefit |
(486 | ) | (5,332 | ) | (18,176 | ) | |||||||||
Net
loss |
$ | (43,153 | ) | $ | (41,216 | ) | $ | (45,966 | ) | ||||||
Net loss
per common share basic and diluted |
$ | (3.14 | ) | $ | (3.00 | ) | $ | (3.35 | ) | ||||||
Weighted
average shares outstanding basic and diluted |
13,735 | 13,735 | 13,735 |
Redeemable Preferred Stock |
Stockholders Deficiency |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Series A Convertible |
Series B Convertible |
Preferred Stock |
Common Stock |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Voting |
Series B Non-Voting |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Capital in Excess of Par Value |
Accumulated Deficit |
Total |
|||||||||||||||||||||||||||||||||||||||||||
Balance
at January 1, 2008 |
1,766,703 | $ | 21,000 | 8,444,853 | $ | 5,000 | 0 | $ | 0 | 3,561,127 | $ | 4 | 1,839,825 | $ | 2 | $ | 60,576 | $ | (98,701 | ) | $ | (38,119 | ) | ||||||||||||||||||||||||||||||||
Exercise of
warrants |
1,686,700 | 1 | (1 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss
|
(45,966 | ) | (45,966 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at
December 31, 2008 |
1,766,703 | 21,000 | 8,444,853 | 5,000 | 0 | 0 | 5,247,827 | 5 | 1,839,825 | 2 | 60,575 | (144,667 | ) | (84,085 | ) | ||||||||||||||||||||||||||||||||||||||||
Classification
of warrants as a liability |
(4,756 | ) | (1,585 | ) | (6,341 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of
warrants |
1,269,919 | 1 | (1 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss
|
(41,216 | ) | (41,216 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at
December 31, 2009 |
1,766,703 | 21,000 | 8,444,853 | 5,000 | 0 | 0 | 6,517,746 | 6 | 1,839,825 | 2 | 55,818 | (187,468 | ) | (131,642 | ) | ||||||||||||||||||||||||||||||||||||||||
Transfer of
preferred stock from temporary equity to stockholders deficiency |
(1,766,703 | ) | (21,000 | ) | (8,444,853 | ) | (5,000 | ) | 10,211,556 | 10 | 25,990 | 26,000 | |||||||||||||||||||||||||||||||||||||||||||
Other
|
(985 | ) | (985 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss
|
(43,153 | ) | (43,153 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at
December 31, 2010 |
0 | $ | 0 | 0 | $ | 0 | 10,211,556 | $ | 10 | 6,517,746 | $ | 6 | 1,839,825 | $ | 2 | $ | 80,823 | $ | (230,621 | ) | $ | (149,780 | ) |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Cash flows
from operating activities: |
|||||||||||||||
Net loss
|
$ | (43,153 | ) | $ | (41,216 | ) | $ | (45,966 | ) | ||||||
Adjustments
to reconcile net loss to net cash provided by operating activities: |
|||||||||||||||
Deferred
income tax benefit |
(1,278 | ) | (5,332 | ) | (18,550 | ) | |||||||||
Impairment of
intangibles |
4,660 | 4,000 | 24,431 | ||||||||||||
Net loss on
extinguishment and modification of debt |
7,457 | 7,240 | | ||||||||||||
Amortization
of acquired intangibles and software |
24,461 | 35,454 | 36,347 | ||||||||||||
Depreciation
and other amortization |
4,702 | 4,881 | 4,502 | ||||||||||||
Amortization
of film costs |
3,763 | 4,001 | 3,899 | ||||||||||||
Non-cash
interest, including amortization of discount |
45,148 | 47,139 | 30,725 | ||||||||||||
Provision for
doubtful accounts |
839 | 249 | 1,505 | ||||||||||||
Gain on
elimination of liability for United Kingdom VAT not charged to customers |
| (1,561 | ) | | |||||||||||
Gain on
settlement of VAT liability not charged to customers |
| (232 | ) | (2,690 | ) | ||||||||||
Gain on
warrant liability |
(38 | ) | (2,744 | ) | | ||||||||||
Other
|
504 | 209 | 32 | ||||||||||||
Changes in
operating assets and liabilities: |
|||||||||||||||
Restricted
cash |
(1,090 | ) | 1,566 | 8,480 | |||||||||||
Accounts
receivable |
1,417 | (3,050 | ) | 5,101 | |||||||||||
Inventories
|
311 | 288 | 88 | ||||||||||||
Prepaid
expenses |
3,446 | (1,652 | ) | (2,820 | ) | ||||||||||
Film costs
|
(3,549 | ) | (3,705 | ) | (4,461 | ) | |||||||||
Deferred debt
costs |
(4,265 | ) | (5,594 | ) | | ||||||||||
Deferred
offering costs |
(4,217 | ) | (6,974 | ) | (2,076 | ) | |||||||||
Other assets
|
1,169 | (1,133 | ) | (864 | ) | ||||||||||
Accounts
payable |
(3,132 | ) | 3,579 | (2,775 | ) | ||||||||||
Accrued
expenses and other liabilities |
3,230 | 1,034 | 440 | ||||||||||||
Deferred
revenue |
2,255 | 3,232 | 15,600 | ||||||||||||
Net cash
provided by operating activities |
42,640 | 39,679 | 50,948 | ||||||||||||
Cash flows
from investing activities: |
|||||||||||||||
Cash received
from escrow in connection with acquisition |
2,679 | 7,321 | | ||||||||||||
Purchases of
property and equipment |
(3,530 | ) | (3,542 | ) | (9,161 | ) | |||||||||
Reduction of
goodwill attributable to reimbursement from prior owners of Various |
| 915 | | ||||||||||||
Other
|
(399 | ) | (490 | ) | (128 | ) | |||||||||
Net cash
(used in) provided by investing activities |
(1,250 | ) | 4,204 | (9,289 | ) | ||||||||||
Cash flows
from financing activities: |
|||||||||||||||
Debt issuance
costs |
(5,834 | ) | | | |||||||||||
Repayment of
long-term debt |
(25,921 | ) | (44,987 | ) | (25,336 | ) | |||||||||
Redemption of
long-term debt |
(86,237 | ) | | | |||||||||||
Issuance of
New First and Second Lien Notes |
89,572 | | | ||||||||||||
Other
|
(985 | ) | | | |||||||||||
Net cash
(used in) financing activities |
(29,405 | ) | (44,987 | ) | (25,336 | ) | |||||||||
Net
increase (decrease) in cash |
11,985 | (1,104 | ) | 16,323 | |||||||||||
Cash at
beginning of period |
22,600 | 23,704 | 7,381 | ||||||||||||
Cash at
end of period |
$ | 34,585 | $ | 22,600 | $ | 23,704 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Supplemental disclosures of cash flow information: |
|||||||||||||||
Cash paid
for: |
|||||||||||||||
Interest paid
|
$ | 43,541 | $ | 45,531 | $ | 53,592 | |||||||||
Income taxes
|
| 1,343 | 17 | ||||||||||||
Non-cash
investing and financing activities: |
|||||||||||||||
Reduction of
Subordinated Convertible Notes and goodwill for bonus indemnification from former stockholders of Various |
| $ | 1,202 | $ | 1,074 | ||||||||||
Accrual and
issuance of notes for debt modification costs |
| $ | 6,041 | | |||||||||||
Effect of
elimination of United Kingdom VAT liability: |
|||||||||||||||
Reduction in
accrued expenses and other liabilities |
| $ | 39,520 | | |||||||||||
Increase in
Subordinated Convertible Notes payable |
| $ | 28,989 | | |||||||||||
Reduction of
goodwill |
| $ | 5,381 | | |||||||||||
Increase in
deferred tax liability |
| $ | 3,587 | | |||||||||||
Exchange of
New First Lien Notes for outstanding First ($126,124) and Second ($48,275) Lien Notes |
$ | 174,399 | | | |||||||||||
Issuance of
New First Lien Notes for commitment fees |
$ | 13,146 | | | |||||||||||
Exchange of
New First Lien Notes and Cash Pay Second Lien Notes for Senior Secured Notes |
$ | 28,053 | | | |||||||||||
Exchange of
Non-Cash Pay Second Lien Notes for outstanding Subordinated Convertible Notes ($161,560) plus $3,514 of accrued interest |
$ | 165,074 | | | |||||||||||
Exchange of
Non-Cash Pay Second Lien Notes for $42,811 of Subordinated Term Notes plus $5,949 of accrued interest |
$ | 45,726 | | |
1. |
Principles of consolidation: |
2. |
Stock splits: |
3. |
Use of estimates: |
4. |
Cash and cash equivalents: |
5. |
Restricted cash: |
6. |
Accounts receivable: |
7. |
Inventories: |
8. |
Property and equipment: |
9. |
Software costs: |
10. |
Film costs: |
11. |
Goodwill, trademarks and other intangibles: |
12. |
Deferred debt costs: |
13. |
Deferred offering costs: |
14. |
Revenue recognition: |
a) |
Internet: |
b) |
Entertainment: |
15. |
Cost of revenue: |
16. |
Product development: |
17. |
Advertising: |
18. |
Loyalty program: |
19. |
Stock-based compensation: |
20. |
Income taxes: |
21. |
Value added taxes: |
22. |
Foreign currency transactions: |
23. |
Concentration of credit risk: |
24. |
Fair value of financial instruments: |
25. |
Per share data: |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Common stock
|
6,518 | 6,518 | 5,248 | ||||||||||||
Series B
common stock |
1,840 | 1,840 | 1,840 | ||||||||||||
Common stock
purchase warrants |
5,377 | 5,377 | 6,647 | ||||||||||||
13,735 | 13,735 | 13,735 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Series A
Convertible Preferred Stock |
2,000 | 2,000 | 2,000 | ||||||||||||
Series B
Convertible Preferred Stock |
8,445 | 8,445 | 8,445 | ||||||||||||
Warrants
|
502 | 502 | 502 | ||||||||||||
Total common
shares issuable |
10,947 | 10,947 | 10,947 |
26. |
Reclassifications |
December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||
Paper and
printing costs |
$ | 693 | $ | 804 | |||||||
Editorials
and pictorials |
335 | 535 | |||||||||
$ | 1,028 | $ | 1,339 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Opening
balance |
$ | 4,526 | $ | 4,822 | $ | 4,260 | |||||||||
Content
produced |
3,549 | 3,705 | 4,461 | ||||||||||||
Amortization
|
(3,763 | ) | (4,001 | ) | (3,899 | ) | |||||||||
Ending
balance |
$ | 4,312 | $ | 4,526 | $ | 4,822 |
December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||
Property and
equipment: |
|||||||||||
Leasehold
improvements |
$ | 1,004 | $ | 757 | |||||||
Computer
hardware and software |
39,318 | 36,035 | |||||||||
40,322 | 36,792 | ||||||||||
Less
accumulated depreciation and amortization |
33,656 | 22,980 | |||||||||
$ | 6,666 | $ | 13,812 |
Internet |
Entertainment |
Total |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance as of
December 31, 2008 |
$ | 334,037 | $ | | $ | 334,037 | ||||||||
Reduction for
elimination of VAT liability (see Note J(f)) |
(5,380 | ) | (5,380 | ) | ||||||||||
Reduction for
reimbursement from sellers of Various |
(915 | ) | | (915 | ) | |||||||||
Reduction for
indemnification from sellers of Various (see Note J(f)) |
(1,202 | ) | | (1,202 | ) | |||||||||
Balance as of
December 31, 2009 and 2010 |
$ | 326,540 | $ | | $ | 326,540 |
December 31, |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
|||||||||||||||||||||
Gross Amount |
Accumulated Amortization |
Gross Amount |
Accumulated Amortization |
Estimated Useful Lives (Years) |
||||||||||||||||||
Amortizable
intangible assets: |
||||||||||||||||||||||
Non-compete
agreements |
$ | 10,600 | $ | 10,600 | $ | 10,600 | $ | 7,305 | 3 | |||||||||||||
Customer
lists |
23,626 | 23,280 | 28,666 | 27,988 | 24 | |||||||||||||||||
Service
contracts |
72,800 | 44,782 | 72,800 | 30,185 | 35 | |||||||||||||||||
Studio
contracts |
3,300 | 2,530 | 3,300 | 1,705 | 4 | |||||||||||||||||
Other
|
2,840 | 2,840 | 2,840 | 2,840 | 3 | |||||||||||||||||
$ | 113,166 | $ | 84,032 | $ | 118,206 | $ | 70,023 |
December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||
Accrued
liability related to VAT |
$ | 42,235 | $ | 45,719 | |||||||
Chargeback
reserve |
1,137 | 860 | |||||||||
Compensation
and benefits |
1,273 | 1,193 | |||||||||
Accrued
marketing |
1,148 | 1,328 | |||||||||
Legal and
related expenses |
510 | 1,055 | |||||||||
Accrued
interest |
| 7,538 | |||||||||
Accrued
commissions to third party websites |
3,147 | 2,774 | |||||||||
Accrued
waiver fees |
| 2,613 | |||||||||
Accrued loss
related to claim in arbitration (see Note Q (a)) |
10,000 | | |||||||||
Other
|
5,970 | 6,647 | |||||||||
$ | 65,420 | $ | 69,727 |
December 31, |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||||||||||
Principal |
Unamortized Discount |
Principal |
Unamortized Discount |
||||||||||||||||
Debt issued
by FriendFinder and INI on October 27, 2010 (a): |
|||||||||||||||||||
First Lien
Notes due 20112013, including principal of $112,020 ($108,154 net of discount) issued to Companys stockholders (b)(e) |
$ | 305,000 | $ | 10,974 | | | |||||||||||||
Cash Pay
Second Lien Notes due 2013 issued to entities controlled by stockholders who are officers and directors (c)(e) |
13,778 | 262 | | | |||||||||||||||
Non-Cash Pay
Second Lien Notes, due 2014, including principal of $233,191 ($212,560 net of discount) issued to Company stockholders, including $45,310 ($41,302 net
of discount) to entities controlled by certain officers and directors(d)(e) |
237,211 | 20,986 | | | |||||||||||||||
Debt issued
by INI in connection with the acquisition of Various: |
|||||||||||||||||||
New First
Lien Notes due 20092011, including principal of $75,722 ($70,715 net of discount) issued to selling stockholders (f) |
| | $ | 189,014 | $ | 12,497 | |||||||||||||
Second Lien
Subordinated Secured Notes due 2011 issued to selling stockholders (f) |
| | 80,000 | 3,300 | |||||||||||||||
Subordinated
Convertible Notes due 2011 issued to selling stockholders (g) |
| | 169,807 | 28,265 | |||||||||||||||
Other (h)
|
2,250 | 457 | 6,250 | 1,142 | |||||||||||||||
Senior
Secured Notes of FriendFinder due 2010 (i) |
| | 46,311 | 845 | |||||||||||||||
Subordinated
Term Notes of FriendFinder due 2011 (j) |
| | 42,811 | | |||||||||||||||
$ | 558,239 | $ | 32,679 | $ | 534,193 | $ | 46,049 | ||||||||||||
Less
unamortized discount |
(32,679 | ) | (46,049 | ) | |||||||||||||||
Less current
installment of long-term debt, net of unamortized discount of $744 and $1,931, respectively |
(15,009 | ) | (56,116 | ) | |||||||||||||||
$ | 510,551 | $ | 432,028 |
(a) |
On October 27, 2010, $305,000,000 principal amount of 14% Senior Secured Notes due 2013 were co-issued by FriendFinder and its wholly-owned subsidiary Interactive Network, Inc (INI), the parent of Various (the New First Lien Notes), of which (a) $200,185,000 was exchanged for $130,485,000 outstanding principal amount of First Lien Notes, $49,361,000 outstanding principal amount of Second Lien Notes and $14,551,000 outstanding principal amount of Senior Secured Notes, (b) $91,400,000 was issued for cash proceeds of $89,572,000 before payment of related fees and expenses of $5,834,000 and (c) $13,415,000 was issued to pay commitment fees to the holders of First Lien Notes and Second Lien Notes. Cash of $86,237,000 was used to redeem $36,608,000 outstanding principal amount of First Lien Notes at 102% of principal, $30,639,000 outstanding principal amount of Second Lien Notes (representing the remaining outstanding principal amounts of First Lien Notes and Second Lien Notes) and $18,258,000 outstanding principal amount |
of Senior Secured Notes. Cash was also used to pay $4,132,000 of accrued interest on the exchanged and redeemed notes, an $825,000 redemption premium on certain exchanged First Lien Notes and $435,000 in commitment fees to certain noteholders. |
(b) |
The New First Lien Notes, of which approximately $112,020,000 principal amount were issued to the Companys stockholders, including $7,460,000 to entities controlled by certain officers and directors, were issued with an original issue discount of $6,100,000, or 2.0%. The notes mature on September 30, 2013 and accrue interest at a rate per annum equal to 14.0%. Interest on the notes is payable quarterly on March 31, June 30, September 30 and December 31 of each year. Principal on the New First Lien Notes is payable quarterly to the extent of 75% of Excess Cash Flow, as defined, at 102% of principal, subject to pro-rata sharing |
with the Cash Pay Second Lien Notes. The New First Lien Notes are guaranteed by domestic subsidiaries of FriendFinder and INI and are collateralized by a first-priority lien on all of the Companys assets as well as a pledge of stock of subsidiaries. The New First Lien Notes are redeemable prior to maturity at the option of the Company, in whole but not in part, at 110% of principal, plus accrued and unpaid interest. In the event of an IPO, the net proceeds must be used to redeem the New First Lien Notes and Cash Pay Second Lien Notes pro-rata at 110% of principal plus accrued and unpaid interest. In addition, noteholders have the option of requiring the Company to repay the New First Lien Notes and Cash Pay Second Lien Notes in full upon a Change of Control, as defined, at 110% of principal. The Company shall also repay the New First Lien Notes and, in certain circumstances, the Cash Pay Second Lien Notes, with proceeds received from any debt or equity financing (including a secondary offering) and asset sales of more than $25 million at 110% of principal, and with proceeds from other asset sales, insurance claims, condemnation and other extraordinary cash receipts at principal, subject to certain exceptions. |
(c) |
The Cash Pay Second Lien Notes, all of which were issued to entities controlled by stockholders who are also officers and directors, were issued with an original issue discount of $276,000, or 2%, mature on September 30, 2013 and have identical terms to those of the New First Lien Notes, except as to matters regarding collateral, subordination, enforcement and voting. The Cash Pay Second Lien Notes are collateralized by a fully subordinated second lien on substantially all of the assets of the Company, pari passu with the Non-Cash Pay Second Lien Notes, and will vote with the New First Lien Notes on a dollar for dollar basis on all matters except for matters relating to collateral, liens and enforcement of rights and remedies. As to such matters, the Cash Pay Second Lien Notes will vote with the Non-Cash Pay Second Lien Notes. |
(d) |
The Non-Cash Pay Second Lien Notes, of which approximately $228,519,000 principal amount were issued to the Companys stockholders, including $44,402,000 to entities controlled by certain officers and directors, mature on April 30, 2014 and bear interest at 11.5%, payable semi-annually on June 30 and December 31, which may be paid in additional notes at the Companys option. While the New First Lien Notes are in place, interest must be paid with additional notes. During 2010, interest amounting to $4,752,000 was paid through the issuance of additional Non-Cash Pay Second Lien Notes. The Non-Cash Pay Second Lien Notes are guaranteed by the domestic subsidiaries of FriendFinder and INI and collateralized by a second priority lien on all of the Companys assets and a pledge of the stock of subsidiaries; however, such security interest is subordinate to the prior payment of the New First Lien Notes. The Non-Cash Pay Second Lien Notes are redeemable, at the option of the Company, in whole but not in part, at 100% of principal plus accrued and unpaid interest. Upon the payment in full of the New First Lien Notes, principal on the Non-Cash Pay Second Lien Notes is payable quarterly to the extent of 75% of Excess Cash Flow, as defined, at 102% of principal subject to pro-rata sharing with the Cash Pay Second Lien Notes. Upon an IPO, if the New First Lien Notes are paid in full, the net proceeds must be used to redeem the Non-Cash Pay Second Lien Notes and Cash Pay Second Lien Notes on a pro-rata basis at 110% of principal plus accrued and unpaid interest. In addition, noteholders have the option of requiring the Company to repay the Non-Cash Pay Second Lien Notes in full upon a Change of Control, as defined, at 110% of principal plus accrued and unpaid interest. If the New First Lien Notes are paid in full, the Company shall repay the Non-Cash Pay Second Lien Notes and Cash Pay Second Lien Notes on a pro-rata basis with proceeds received from any debt or equity financing (including a secondary offering), and asset sales of more than $25 million at 110% of principal plus accrued and unpaid interest and with proceeds of other asset sales, insurance claims, condemnation and other extraordinary cash receipts at principal, subject to certain exceptions. The Non-Cash Pay Second Lien Notes will become convertible into shares of the Companys common stock upon or after an IPO solely at the option of the holders. The conversion price of the notes will be at the per share offering price for the Companys common stock upon consummation of the IPO provided that such conversion option shall be limited to approximately 21.1% of the Companys fully diluted equity. |
(e) |
The New First Lien Notes, the Cash Pay Second Lien Notes and Non-Cash Pay Second Lien Notes (1) require the Company to maintain minimum specified levels of EBITDA and liquidity and financial ratios, including debt and coverage ratios, all as defined, (2) provides for certain limitations including limits on indebtedness, lease obligations, VAT payments and investments and (3) prohibits dividends and other payments with respect to the Companys equity securities. |
(f) |
The New First Lien Notes (First Lien Notes), of which approximately $110,000,000 principal amount were issued to the Companys stockholders including $10,000,000 to entities controlled by certain officers and directors, were issued with an original issue discount of $7,720,000, or approximately 3.0%, were to mature on June 30, 2011, and accrued interest at a rate per annum equal to the sum of the greater of three month LIBOR (0.25% at December 31, 2009) or 4.5%, plus 8.0%. Interest on the notes was payable quarterly on March 31, June 30, September 30 and December 31 of each year. Principal on the First Lien Notes was payable quarterly to the extent of 90% of Excess Cash Flow, as defined, subject to minimum amounts. |
(g) |
The Subordinated Convertible Notes (Convertible Notes) were to mature on December 6, 2011 and bore interest at 6% which was paid in additional Convertible Notes at INIs option. The notes had been recorded at estimated fair value at the date of issuance, resulting in an effective interest rate of approximately 13% and discount of $24,977,000, which was being amortized as interest expense (by use of the interest method) over the term of the notes. During 2008, interest amounting to $6,892,000 was paid through issuance of additional Convertible Notes. The notes were the unsecured obligation of INI and were guaranteed by FriendFinder. The notes were subordinate in right of payment to the First Lien Notes and Second Lien Notes. The guarantee was subordinate to the prior payment of FriendFinders Senior Notes and the guarantee of the First Lien Notes and Second Lien Notes and pari passu in right of payment with FriendFinders Subordinated Term Notes. The notes which had an original principal amount of $170,000,000 were subject to reduction to the extent certain post-closing bonuses of up to $3.5 million were paid by Various over a three-year period and for a post-closing working capital adjustment. During 2009 and 2008, respectively, as a result of payment of $1.3 and $1.4 million in bonuses which were charged to expense, the principal amount of the notes was reduced and the carrying value of the notes was reduced by $1.1 and $1.1 million, respectively, with a corresponding reduction in goodwill. The post-closing working capital adjustment determined by the Company resulted in an indemnity claim which has been reflected as a reduction of $64,279,357 in the principal amount of the notes and a $10,000,000 receivable from an escrow fund set up in connection with the acquisition. |
(h) |
In connection with the acquisition of Various, INI issued a non-interest bearing obligation with a principal balance of $5.0 million to a former owner. In each of 2009 and 2008, $1.0 million of the notes were paid and 3.0 million was paid in 2010. The obligation was recorded at a present value of $3.6 million using a discount rate of 15%. |
(i) |
The Senior Secured Notes were scheduled to mature on July 31, 2010 and bore interest at 15% payable quarterly in cash. The notes were collateralized by a first-priority security interest in all of the Companys assets, other than those of INI and its subsidiaries for which a third-priority secured interest had been granted. |
(j) |
The Subordinated Term Notes, which were held by entities controlled by certain principal stockholders of the Company who are also officers and directors, were to mature on October 1, 2011 and bore interest at 13% payable annually principally through the issuance of additional subordinated notes. The Subordinated Term Notes were collateralized by a second priority security interest in all assets of the Company other than those held by INI and its subsidiaries and were subordinate to the notes issued by INI as well as the Senior Secured Notes issued by FriendFinder. |
Year |
Amount |
|||||
---|---|---|---|---|---|---|
2011
|
$ | 15,753 | ||||
2012
|
1,000 | |||||
2013
|
304,275 | |||||
2014
|
237,211 | |||||
$ | 558,239 |
Expiration Date(1) |
Exercise Price |
Number of Shares(2) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
August 2015
|
$ | 6.20 | (4) | 476,573 | (4) | |||||
August 2015
|
$ | 10.25 | (4) | 25,090 | ||||||
August 2015
|
$ | 0.0002 | 243,287 | |||||||
August 2016
|
$ | 0.0002 | 441,474 | |||||||
December 2017
|
$ | 0.0002 | 4,692,996 | (3) | ||||||
5,879,420 |
(1) |
Except for warrants to purchase 1,373,859 shares of common stock at $0.0002 per share which were amended on October 8, 2009, warrants terminate if not exercised concurrently with the consummation of an IPO, if earlier than their stated expiration date. |
(2) |
The number of shares of common stock for which each warrant is exercisable will be decreased immediately prior to the closing of an IPO in the event that the Company has issued prior to such IPO fewer than 1,343,997 shares or options pursuant to an equity incentive or benefit plan except for the warrants exercisable at $10.25. The adjustment provision for such warrants is triggered if the Company has issued fewer than 588,890 shares or options pursuant to an equity incentive or benefit plan prior to the closing of an IPO. |
(3) |
With respect to warrants to acquire 2,441,989 common shares, in order to maintain the warrant holders percentage of fully diluted equity, the number of shares of common stock for which each such warrant is exercisable shall be increased immediately prior to the closing of an IPO based on the number of shares of common stock into which the Non-Cash Pay Second Lien Notes which were exchanged for Convertible Notes issued to selling stockholders in the acquisition of Various, will be convertible based on the IPO price. |
(4) |
Adjusted for subsequent dilutive issuances of equity securities. |
2010 |
2009 |
2008 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Current: |
||||||||||||||
Federal
|
$ | 162 | $ | | $ | 374 | ||||||||
State
|
630 | | | |||||||||||
792 | | 374 | ||||||||||||
Deferred: |
||||||||||||||
Federal
|
(1,118 | ) | (4,688 | ) | (13,615 | ) | ||||||||
State
|
(160 | ) | (644 | ) | (4,935 | ) | ||||||||
(1,278 | ) | (5,332 | ) | (18,550 | ) | |||||||||
Total tax
benefit |
$ | (486 | ) | $ | (5,332 | ) | $ | (18,176 | ) |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Tax benefit
at federal statutory rate (35%) |
$ | 15,274 | $ | 16,292 | $ | 22,450 | |||||||||
State taxes,
net of federal effect |
1,552 | 435 | 3,208 | ||||||||||||
Impairment of
goodwill |
| | (3,350 | ) | |||||||||||
Net operating
loss for which no tax benefit is recognized |
(16,679 | ) | (4,881 | ) | (4,842 | ) | |||||||||
Non-deductible penalties including related foreign exchange gain |
| 97 | 1,119 | ||||||||||||
Write off of
deferred tax asset related to United Kingdom VAT liability which was eliminated (see Note I) |
| (7,785 | ) | | |||||||||||
Gain on
warrant liability |
14 | 960 | | ||||||||||||
Other
|
326 | 214 | (409 | ) | |||||||||||
Tax benefit
|
$ | 486 | $ | 5,332 | $ | 18,176 |
December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||
Deferred tax
assets: |
|||||||||||
Net operating
loss carryforwards |
$ | 27,424 | $ | 30,430 | |||||||
Allowance for
doubtful accounts |
894 | 861 | |||||||||
Accrued
liability related to VAT |
12,264 | 13,733 | |||||||||
Accrued loss
related to claim in arbitration |
5,200 | | |||||||||
Other
|
590 | 427 | |||||||||
Gross
deferred tax assets |
46,372 | 45,451 | |||||||||
Less
valuation allowance |
(28,627 | ) | (11,948 | ) | |||||||
Net deferred
tax assets |
17,745 | 33,503 | |||||||||
Deferred tax
liabilities: |
|||||||||||
Trademarks
and domain names not subject to amortization |
(23,794 | ) | (25,644 | ) | |||||||
Intangible
assets subject to amortization |
(11,654 | ) | (19,273 | ) | |||||||
Long-term
debt |
(5,875 | ) | (10,634 | ) | |||||||
Property and
equipment, including software |
(217 | ) | (3,222 | ) | |||||||
Other
|
(958 | ) | (761 | ) | |||||||
(42,498 | ) | (59,534 | ) | ||||||||
Net deferred
tax liabilities |
$ | (24,753 | ) | $ | (26,031 | ) |
December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||
Deferred tax
asset current |
$ | 5,522 | $ | 11,366 | |||||||
Deferred tax
liability non-current |
(30,275 | ) | (37,397 | ) | |||||||
Net deferred
tax liability |
$ | (24,753 | ) | $ | (26,031 | ) |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Assets: |
|||||||||||||||
Internet
|
$ | 506,297 | $ | 522,179 | $ | 568,999 | |||||||||
Entertainment
|
22,399 | 23,520 | 26,724 | ||||||||||||
Unallocated
corporate |
4,121 | 6,182 | 4,190 | ||||||||||||
Total
|
$ | 532,817 | $ | 551,881 | $ | 599,913 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 | |||||||||||||
Net revenue
from external customers: |
|||||||||||||||
Internet
|
$ | 321,605 | $ | 306,213 | $ | 306,129 | |||||||||
Entertainment
|
24,392 | 21,479 | 24,888 | ||||||||||||
Total
|
$ | 345,997 | $ | 327,692 | $ | 331,017 | |||||||||
Income from
operations: |
|||||||||||||||
Internet
|
$ | 76,142 | $ | 64,962 | $ | 34,345 | |||||||||
Entertainment
|
1,140 | (439 | ) | (17,748 | ) | ||||||||||
Total segment
income from operations |
77,282 | 64,523 | 16,597 | ||||||||||||
Unallocated
corporate |
(5,547 | ) | (6,128 | ) | (9,488 | ) | |||||||||
Total
|
$ | 71,735 | $ | 58,395 | $ | 7,109 | |||||||||
Amortization
of acquired intangibles and software (included in income from operations): |
|||||||||||||||
Internet
|
$ | 24,461 | $ | 35,454 | $ | 36,347 | |||||||||
Entertainment
|
| | | ||||||||||||
Unallocated
corporate |
| | | ||||||||||||
Total
|
$ | 24,461 | $ | 35,454 | $ | 36,347 | |||||||||
Depreciation
and other amortization (included in income from operations): |
|||||||||||||||
Internet
|
$ | 4,527 | $ | 4,587 | $ | 4,052 | |||||||||
Entertainment
|
177 | 294 | 450 | ||||||||||||
Unallocated
corporate |
| | | ||||||||||||
Total
|
$ | 4,704 | $ | 4,881 | $ | 4,502 | |||||||||
Impairment of
goodwill and other assets (included in income from operations): |
|||||||||||||||
Internet
|
$ | | $ | | $ | 6,829 | |||||||||
Entertainment
|
4,660 | 4,000 | 17,602 | ||||||||||||
Total
|
$ | 4,660 | $ | 4,000 | $ | 24,431 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Internet: |
|||||||||||||||
Subscription
based service |
$ | 245,174 | $ | 245,015 | $ | 246,978 | |||||||||
Pay by usage
service |
76,321 | 60,434 | 56,729 | ||||||||||||
Advertising
|
110 | 764 | 2,422 | ||||||||||||
321,605 | 306,213 | 306,129 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 | |||||||||||||
Entertainment: |
|||||||||||||||
Magazine
|
10,894 | 12,218 | 15,581 | ||||||||||||
Video
entertainment |
10,892 | 6,441 | 6,048 | ||||||||||||
Licensing
|
2,606 | 2,820 | 3,259 | ||||||||||||
24,392 | 21,479 | 24,888 | |||||||||||||
Total
revenues |
$ | 345,997 | $ | 327,692 | $ | 331,017 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Net
revenue: |
|||||||||||||||
United States
|
$ | 178,873 | $ | 177,753 | $ | 192,102 | |||||||||
Europe
|
103,224 | 97,317 | 86,797 | ||||||||||||
Canada
|
17,200 | 15,364 | 16,381 | ||||||||||||
Other
|
46,700 | 37,258 | 35,737 | ||||||||||||
Total
|
$ | 345,997 | $ | 327,692 | $ | 331,017 |
Year |
Operating Leases |
|||||
---|---|---|---|---|---|---|
2011
|
$ | 2,076 | ||||
2012 |
2,125 | |||||
2013
|
2,125 | |||||
2014
|
2,070 | |||||
2015
|
1,800 | |||||
Thereafter
|
2,217 | |||||
Total
|
$ | 12,413 |
(a) |
On December 28, 2007, Broadstream Capital Partners, Inc. (Broadstream) filed a lawsuit against the Company in the State Superior Court of California, County of Los Angeles, Central District, and the Company subsequently removed the case to the Federal District Court for the Central District of California. The complaint alleged breach of contract, breach of covenant of good faith and fair dealing, breach of fiduciary duty and constructive fraud arising out of a document entitled Non-Disclosure Agreement. The complaint |
alleged, among other things, that Broadstream entered into a Non-Disclosure Agreement with the Company that required Broadstreams prior written consent for the Company to knowingly acquire Various or any of its subsidiaries and that such consent was not obtained. On April 7, 2008, Broadstream filed its First Amended Complaint, which added a new cause of action for intentional interference with prospective economic advantage. On February 20, 2009, Broadstream filed its Third Amended Complaint, which dismisses the allegations of breach of fiduciary duty and constructive fraud. The complaint seeks damages which plaintiff alleges to be in excess of $20 million, plus interest, costs and punitive damages. Broadstream later asserted up to $557 million in damages plus punitive damages. On July 20, 2009, the Company entered into an agreement with Broadstream under which, without admitting liability, the Company agreed to pay Broadstream $3.0 million in $1.0 million installments due no later than July 2009, January 2010 and July 2010. Such payments were timely made. The agreement provides that upon the earlier of twelve months after the Company has securities registered under Section 12(b) of the Securities Exchange Act of 1934, as amended, or eighteen months after the effective date of the agreement, but not later than twelve months following such earlier date, Broadstream must choose either to (i) refile its complaint in Federal District Court provided that it first repay the Company the $3.0 million or (ii) demand arbitration. If Broadstream elects arbitration, the parties have agreed that there will be an arbitration award to Broadstream of at least $10.0 million but not more than $47.0 million. Giving consideration of the limitation of the arbitration award in relation to damages sought in litigation, management had not concluded that it was probable that Broadstream would demand arbitration. Accordingly, no loss had been provided for as a result of entering into the agreement. In the event that Broadstream elected arbitration, at such time the Company would recognize a loss in connection with the matter of $13.0 million to $50.0 million. |
(b) |
On December 23, 2005, Robert Guccione, our former president, filed an action against the Company and some of its officers, among other defendants, in New York State Court for breach of contract, fraud, unjust enrichment, promissory estoppel, failure to pay severance and conspiracy to defraud. The amount of damages requested in the complaint against the Company is approximately $9.0 million and against the officers is in excess of $10.0 million. Some of the counts in the complaint also demand an unspecified amount of damages. Guccione filed an amended complaint on June 5, 2007 to include additional claims relating to ownership of certain United Kingdom, Jersey and Guernsey trademarks and added as a party Penthouse Publications Limited, an entity with no current affiliation with the Company, as party plaintiff. Guccione agreed to dismiss the count for conspiracy to defraud only. Guccione filed a Second Amended Complaint on December 14, 2007 adding General Media International, Inc. (an entity with no current affiliation with the Company) as party plaintiff and a new claim for inducement to breach of contract. The Company filed its motion to dismiss the Second Amended Complaint on January 31, 2008, which was granted in part and denied in part. The court dismissed the claims for unjust enrichment and promissory estoppel. The Company filed its Answer and |
Affirmative Defenses to the Second Amended Complaint on June 25, 2009. On August 14, 2008, Guccione filed a voluntary petition for Chapter 7 Bankruptcy. Guccione filed a dismissal of the bankruptcy proceedings on November 4, 2009. The Court dismissed the bankruptcy action on November 9, 2009. The settlement agreement between Guccione and his judgment creditors assigns all rights to the New York state court action to his judgment creditors. On January 8, 2010, the Company filed an Amended Answer with counterclaims against Guccione and Penthouse Publications Limited for conversion, breach of fiduciary duty, declaratory relief and indemnification. No specific amount of damages has been requested in the counterclaims. On January 27, 2010, Plaintiffs filed a Reply to the Companys counterclaims. In January and February 2010, certain defendants filed Answers to Plaintiffs Second Amended Complaint with cross-claims against the Company for contribution and indemnification. No specific amount of damages has been requested. In February and March 2010, the Company filed its Answer and Affirmative Defenses to the cross-claims. On October 20, 2010, Guccione passed away. As such, the case is stayed pending substitution of his estate as a party. The Company believes it has meritorious defenses to all claims and intends to vigorously defend the lawsuit. |
(c) |
On November 28, 2006, Antor Media Corporation (Antor) filed a complaint against the Company, its subsidiary, General Media Communications, Inc. (GMCI), and several non-affiliate media/entertainment defendants in the U.S. District Court for the Eastern District of Texas, Texarkana Division, for infringement of a Patent entitled Method and Apparatus for Transmitting Information Recorded on Information Storage Means from a Central Server to Subscribers via a High Data Rate Digital Telecommunications Network. No specific amount of damages has been requested. Injunctive relief is also sought. The Company and its subsidiary filed an Answer, Affirmative Defenses and Counterclaims. The United States Patent and Trademark Office (USPTO) issued a non-final office action rejecting Antors patent claims. Antor filed a response to the office action which added 83 new claims to the original 29 rejected claims. In August 2008, the USPTO issued its final office action sustaining its rejection of the original 29 claims and rejecting the 83 new claims. Antor filed its Petition to Vacate Finality of Office Action on the grounds it introduced new grounds for the rejection. Based on the final office action, the Company, GMCI and all other defendants filed an expedited motion to stay the case. In December 2008, pursuant to an order granting a re-examination proceeding, the USPTO issued a non-final office action again rejecting the original 29 claims and the new 83 claims. In February 2009, Antor filed a response in which it agreed to cancel the 83 new claims previously proposed. On May 11, 2009, the Court entered an Order granting Defendants Motion to Stay as modified. On May 22, 2009, the defendants accepted the terms of the Courts proposed Stipulation regarding the use of prior art at trial and filed their Stipulation. On June 5, 2009, the USPTO issued a Final Office Action rejecting all of the Plaintiffs claims. Plaintiff filed an appeal on July 7, 2009 and an appellate brief on October 8, 2009. On February 18, 2010, the USPTO filed an answer brief. On October 21, 2010, the USPTO Board of Patent Appeals entered an order affirming the rejection of Antors claims. On December 21, 2010, Antor filed a request for rehearing which was denied in March 2011. The case will remain stayed pending the appeal. |
(d) |
On or about November 27, 2006, a claimant filed a consumer class action arbitration at Judicial Arbitration and Mediation Services, Inc. or JAMS in San Jose, California, alleging a nationwide class action against Various under a variety of legal theories related to, among other things, representations regarding the number of active users on its internet dating websites, causing the appearance of erroneous member profiles, and a failure to adequately remove or account for alleged erroneous member profiles. The claimant is seeking unspecified damages. Various disputes the claims and intends to defend the arbitration vigorously. |
(e) |
In or about March 2009, a complaint was filed against the Companys subsidiary FriendFinder California, Inc. and other defendants in the State Superior Court of California, County of Los Angeles in connection with their advertising on a free adult content website run by a third party known as Bright Imperial Limited. In April 2009, Various and the Company were added as defendants. The complaint alleges that the defendants aided and abetted Bright Imperial Limited in engaging in below cost competition and unlawful use of loss leaders |
in violation of California law by providing free, apparently professionally produced adult content. The plaintiff is seeking $10.0 million in damages, trebled to at least $30.0 million, plus injunctive relief and attorneys fees. On May 8, 2009, the Court denied the plaintiffs request for an Order to Show Cause concerning its request for preliminary injunction, citing insufficient evidence among other factors. On May 26, 2009, the Company filed an Anti-SLAPP Motion to Strike the Complaint along with a Motion to Dismiss the claims in the Complaint. On or about July 24, 2009, after the Court granted the Anti-SLAPP motion the plaintiff then stipulated to the form of an Order on the Anti-SLAPP motion that finds in favor of the Company, effectively terminating the case. On August 10, 2009, plaintiff filed his Notice of Appeal to the California Court of Appeal. On January 26, 2011, the California Appellate Court affirmed the trial courts ruling in the Companys favor. |
(f) |
On November 4, 2008, Balthaser Online, Inc. filed a lawsuit for patent infringement against the Company among other defendants, in the U.S. District Court for the Eastern District of Texas, Texarkana Division, seeking unspecified monetary damages as well as injunctive relief. The complaint alleged infringement of Patent entitled Methods, Systems, and Processes for the Design and Creation of Rich-Media Applications via the Internet. The plaintiff filed a first amended complaint naming Various, Inc., FriendFinder California Inc. and Global Alphabet, Inc. as defendants on January 15, 2009. On or about August 28, 2009, pursuant to local rule, the Company served its invalidity contentions. On September 15, 2009, the Court granted the Companys motion to transfer the case to the U.S. District Court for the Northern District of California. The lawsuit was settled on November 30, 2010 for an immaterial amount and the action was dismissed with prejudice. |
(g) |
In or about December 2007, Spark Network Services, Inc. served Various with a complaint for patent infringement seeking unspecified monetary damages as well as injunctive relief. The complaint alleges infringement of a U.S. Patent entitled System for Data Collection and Matching Compatible Profiles. Various moved for a stay of the federal case due to the USPTOs re-examination of the patent at issue and the Federal Court granted the stay. The USPTO issued a final rejection of the patent at issue on September 18, 2009, and the plaintiff filed a notice of appeal on December 17, 2009. In March 2010, the parties entered into a settlement agreement resolving the case and the Federal action was dismissed with prejudice. The settlement did not have a material effect on the Companys financial statements. |
(h) |
On November 5, 2009, Joao Control and Monitoring Systems of Texas, LLC filed a patent infringement lawsuit in the United States District Court for the Eastern District of Texas against the Company and its indirect wholly-owned subsidiary Streamray Inc., and a number of other unrelated adult entertainment companies, alleging infringement of a patent entitled Monitoring Apparatus and Method and seeking unspecified monetary damages as well as injunctive relief. The lawsuit was served on the Company and Streamray Inc. on November 12, 2009. In or about June 2010 the Company filed a motion related to the propriety of the forum and Streamray Inc. answered the complaint. On or around July 2010, the parties entered into a settlement agreement resolving the case and the action was dismissed with prejudice. The settlement did not have a material effect on the Companys financial statements. |
(i) |
Effective July 1, 2008, Various registered in the European Union and on July 29, 2008, began separately charging VAT to its customers. For periods prior thereto, Various recorded a liability for VAT and related interest and penalties in connection with revenue from internet services derived from its customers in the various European Union countries. Various reduced its VAT liability for periods prior to July 1, 2008 in the countries where the liability was either paid in full or payments were made pursuant to settlement and payment plans or where determinations were made that payments were not due. Various continues to negotiate settlements of the liabilities or challenge the liability related to VAT for periods prior to July 1, 2008 (see Note I). |
(j) |
On May 19, 2009 representatives for Summit Trading Limited (Summit) sent a letter to the Companys outside legal counsel, alleging that the Company, Interactive Brand Development, Inc., (an owner of the Companys Series B Common Stock) and entities affiliated with two of the Companys principal stockholders |
defrauded Summit of financial compensation for services provided to the Companys predecessor entity, General Media, Inc. Among the claims, Summit asserted bad faith, breach of contract and fraud by the Companys management and the Company, and claimed that it is owed an equity interest in the Company, as well as compensatory, punitive and exemplary damages in excess of $500 million. Management believes that the allegations stated in the letter are vague and lack factual basis and merit. Summit has not taken any legal action against the Company. Should Summit take legal action, the Company would vigorously defend the lawsuit. |
(k) |
On November 16, 2010, Patent Harbor, LLC filed a Complaint for patent infringement against, among others, Penthouse Digital Media Productions Inc. (PDMP), in the United States District Court for the Eastern District of Texas. The Complaint alleges an infringement of a U.S. Patent entitled Apparatus and Method for Assembling Content Addressable Video. No specific amount of damages has been requested. However, on November 16, 2010, the Company received a settlement demand from plaintiff in the amount of $800,000. Plaintiff later lowered its demand to $500,000. On January 28, 2011, the Company filed an Answer, Affirmative Defenses and Counterclaims. On February 25, 2011, plaintiff filed its Answer to the Counterclaims. The Company has no insurance coverage for patent infringement claims. The Company disputes the allegations and believes it has meritorious defenses, and plans to vigorously defend the allegations. |
(l) |
On April 13, 2011, Facebook, Inc., or Facebook, filed a complaint against the Company and certain of its subsidiaries in the U.S. District Court for the Northern District of California, alleging trademark infringement with regard to the use of the terms face book of sex. The Complaint contains causes of action for: trademark dilution, false designation of origin, trademark infringement, violation of the Anti-Cybersquatting Consumer Protection Act, and for unfair competition. The Complaint also seeks a declaratory judgment that Facebooks use of friend finder on its website is a descriptive fair use that does not infringe Various trademark rights in the FRIENDFINDER mark. No specific amount of damages has been sought. However, the Complaint requests monetary relief, injunctive relief, punitive damages, cancellation of the FRIENDFINDER marks, attorneys fees, other equitable relief, and costs among other things. The Company intends to vigorously defend the lawsuit. |
The Company currently is a party to other legal proceedings and claims. While management presently believes that the ultimate outcome of these proceedings, including the ones discussed above, individually and in the aggregate, will not have a material adverse effect on the Companys financial position, cash flows, or overall trends in results of operations, litigation and arbitration is subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include monetary damages or, in cases for which injunctive relief is sought, an injunction prohibiting the Company from selling one or more products or services. Were an unfavorable ruling to occur there exists the possibility of a material adverse impact on the business or results of operations for the period in which the ruling occurs or future periods. Other than as disclosed above, the Company is unable to estimate the possible loss or range of loss which may result from pending legal proceedings or claims. |
Amount | ||||||
Securities
and Exchange Commission Registration Fee |
$ | 72,923.63 | (1) | |||
Legal Fees
and Expenses |
50,000 | |||||
Accounting
Fees and Expenses |
25,000 | |||||
Miscellaneous
Expenses |
15,000 | |||||
Total
|
$ | 162,923.63 |
(1) |
Pursuant to Rule 457(p) of the Securities Act, we offset $58,705.58, which was previously paid in connection with a Registration Statement on Form S-4 filed on August 1, 2011, as amended, and withdrawn on October 17, 2011, against the total amount of the registration fee and simultaneously paid the difference in connection with our filing of the Form S-1 Registration Statement on October 18, 2011. Therefore, no registration fee is necessary for this Amendment to the Registration Statement. |
|
to the extent a present or former director or officer of a corporation has been successful on the merits or otherwise in the defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145 or in the defense of any claim, issue or matter therein, such person shall be indemnified against expenses, including attorneys fees, actually and reasonably incurred by such person in connection therewith; |
|
the indemnification and advancement of expenses provided for pursuant to Section 145 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise; and |
|
the corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any |
such capacity, or arising out of such persons status as such, whether or not the corporation would have the power to indemnify such person against such liability under Section 145. |